Sabela Capital Markets was quoted in this Bankrate article about market timing, “Morgan Stanley strategist says to get out of stocks — here’s why you should stay in”.
Morgan Stanley has recently cautioned investors to get out of stocks. Should you care? The truth is, Morgan Stanley’s investment chief probably has no more insight than you do about which way the market will go. Like for all other supposed “gurus”, there is no risk in making a bold call. If right, he’ll be considered skilled, if wrong, he will be given a pass.
Why? Well, when you tune in to any financial news channel, you are persuaded with sensationalized market information, enforcing your anxiety about the complexity of the markets and about being left out of the game. The financial news media sensationalizes information in order to make you think that you need their understanding, otherwise why would you watch. The more of us watch, the more they make in advertising dollars.
To help you “make sense” of the recent news, they provide a platform for financial industry insiders. Talking heads on tv with fancy titles must have magical powers to forecast, right? And we actually want these “experts” to be right because then maybe we too can benefit from their understanding.
What these financial news media channels don’t disclaim is the dismal forecasting record of these so-called market “gurus.” Unfortunately, on average they make forecasts that turn out to be wrong more than half the time. That’s worse than a flip of a coin. A monkey throwing darts at a stock board can probably provide you with just as much useful guidance.
So why do we give a pass to these gurus when they are wrong? Perhaps it has to do with behavioral biases, like projecting overconfidence, which leads us to believe that positive returns are attributable to skill, while losses are due to some uncontrollable or unrelated force like bad luck. In reality, when speculating, there isn’t much difference between skill and luck. Yet we tend to overemphasize the winning trading decisions at the expense of the losing ones. So, when a guru turns out to be wrong, then it must be due to some unforeseeable event, like The Fed changing interest rates, etc, rather than their skill. However, shouldn’t these market experts be able to foresee upcoming market-driving events that the rest of us can’t. It’s these tough calls that should define their skill. Surely, if they end up wrong, there shouldn’t be any excuse, right?
The next time that you think about buying that stock or selling your equity portion from a portfolio based on some market expert’s advice, consider the evidence and flip a coin instead. If you are really serious about improving your odds of investment success, pursue a better investment experience by focusing only on actions that add value. Ignore market headlines, tune out financial media “entertainment”, and invest in a risk-appropriate portfolio of low management fee, globally-diversified index funds for the long term. You’ll be more rational and relaxed about investing. Good luck.