To which I immediately replied, “I am of the strong belief that for a true long-term investor what happens in 2012 (or any brief blip in time) is not material.”
You see, I’m getting a little full of all the melodrama from the financial journalists. So I’m making it my job to counter the hype, the exaggeration, the making of routine events into something of permanent significance.
Call me the anti-alarmist. Folks, the world’s economy is not going to vanish. Despite what the financial journalists told you.
Last year this same friend was concerned that the US stock market was going to fall off a cliff. And, no doubt, over the last year you probably heard a significant amount from the financial journalists about how bad it is in the US. Given that, you may very well be under the impression that 2011 was a really bad year for the US markets.
So, do you want to hazard a guess as to what kind a year the US really had?
The correct answer is the US markets were flat in 2011. Seriously, a flat year, that’s it. 2008 was a horrible year. 2009 was a fantastic year. 2010 was perfectly acceptable. 2011 was a whole lot of nothing. Go ahead and check it out for yourself.
Call me the financial myth-buster. The US markets did not have a bad year in 2011, despite what the financial journalists told you.
It’s not surprise that people are confused about the current state of affairs. Not too long ago I heard a resident financial guru doing a market report on the radio. He tried to describe quantitative easing, a little bit of jargon that refers to a US monetary policy that has the objective of stimulating the US economy.
The only problem is the guy messed up his explanation. In fact, he got things completely backwards. Whether this was simply a slip of the tongue or whether he really didn’t know what he was talking about, what he was saying would, in fact, choke off the economy, not stimulate it. Problem is, if you aren’t an economist, would you know that he screwed it up? Probably not.
So I’m going to be the guy that calls B.S. on the B.S. Which is sometimes exactly what the financial journalists tell you.
This very matter about predictions for 2012, let’s put that into its proper place. Will 2012 be a good year or not?
As a matter of fact, I can answer that question with complete certainty. Just ask me in a year’s time.
Until then, it’s anyone’s guess what happens in the short term. And I really do mean guess.
I like to listen to sports radio. Recently I had the radio on, and one of the experts was doing his weekly predictions for the upcoming games.
Okay, here’s what you need to know about this. This particular fellow is actually a former football player himself. He enjoyed a lengthy and successful career in the CFL. So he knows his football.
The other thing is that he isn’t predicting the results of every football game. Just the ones that he feels the most confident about. These predictions were his weekly sure-fire, can’t miss, go to Vegas and bet it big, guaranteed locks.
So, given that he knows the game, and that these predictions are the ones that he feels best about, you would think that our football expert would be fairly reliable in predicting the results, right?
Wrong. The expert’s season record was 12 -15. And he was an expert. And these were this best picks. Could have done better flipping a coin.
You see, that’s the thing about predictions for the future. They are inherently dubious.
Now, don’t forsake all hope. Markets are remarkably predictable in the long run. It’s just what happens from day to day that is a crapshoot.
So to sum this up, what we have is the melodramatic tendencies of financial journalists to make a big deal of mundane affairs, questions about the qualifications of these same financial journalists to provide insightful analysis, and the inherent unreliability about short-term predictions. Maybe the next time a financial journalist tells you how the next catastrophe is imminent you can put that type of comment in proper perspective.
One of the vital determinants of whether you are able to do the things that you really want to in life is to make financial decisions that are consistent with your objectives, and to not let yourself get distracted by the melodramatic pronouncements of financial journalists.
And that’s no B.S.