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?
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.
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: