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Past as Prologue - Can It Help Predict Market Action?

March 10, 2014 | About:

Looking to past patterns to extrapolate the future:

Fun, but useless.

TV’s Dr. Phil likes to say that the best predictor of future behavior is past behavior. That may certainly be true with people, but can it help you when trying to predict stock market action?

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MarketWatch put out the following chart this morning. It projected where the Standard & Poor's 500 might be 12 months from today, based on events that happened historically in the market's sixth year, when preceded by a five-year bull market.

The five previous instances led to decidedly, and widely, mixed results.

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Based on past behavior the next 12 months could send the indices anywhere from up another 38% to down 42%. Don’t you feel better now that it’s clear what to expect?

Stop wasting your time trying to call the market's twists and turns. Buy good stocks when they appear to be undervalued and sell them when they look fully priced.

You’ll sleep better and grow wealthier.

About the author:

Dr. Paul Price
http://www.RealMoneyPro.com
http://www.TalkMarkets.com

Visit Dr. Paul Price's Website


Rating: 5.0/5 (5 votes)

Voters:

Comments

Earl.Nancy
Earl.Nancy - 4 months ago

Dr Price,

Once again, you nailed your dismount! We Rule #1 market gymnasts stick together...we score 10.0 on our compulsory routines and maximize our technical points on ourr free exercise routines...winners almost everytime using tricks which we can do in our sleep.

Grow free gracefully,

Nancy Davis

AlbertaSunwapta
AlbertaSunwapta - 4 months ago

"Buy good stocks when they appear to be undervalued and sell them when they look fully priced." Unfortunately, human nature and the human condition means people sometimes panic and sell in a downturn or they find that for other reasons that they need to sell. Moreover, poor judgement on the undervalued and fully questions can mean that people buy high and then later decide that a lower price now represents fair value. Many investor's time horizons are often too short and appearances can be disceiving. What's that Buffett's quote about seeing who's swimming naked when the tide goes out? Also, Seth Klaman has spoken to this need to pursue absolute returns. :-)

Also, you say it's Useless Information in a Pretty Chart. I couldn't disagree more. That chart shows just how unpredictable the market can be. People buying anything now should simply not be surprised if their undervalued stock becomes more undervalued. In otherwords, people finding and buying those "good stocks when they appear to be undervalued" should prepare themselves to buy more after a long bull market.

Those following Buffett's advice to just buy index funds should do the same, be prepared to buy more should the market drop. Soemhow I think in the next downturn your advice will ring hollow and people will run for the doors as they often do.

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