The “Slap in the Face” Award: Unmasking the “Psychics”

Steve McDonald
by Steve McDonald, Bond Strategist, The Oxford Club

I’m not sure if this week’s cheek smacker should go to the money writers and analysts out there who are predicting another market crash again, or to the poor unfortunates who buy into their predictions...

Throughout the history of the market, it has always been the same. When we hit new highs, the number of people predicting a crash goes through the roof.

To help put this into perspective and unmask these market psychics, let’s do a little market history lesson.

The Dow Jones average was accepted as a daily item around 1896 at a value of about 40. Not 400 - 40!

By 1932 it climbed to around 350. A little shy of 10 times in 36 years! Not bad.

That same year, it dropped back to 41 - 41.2, to be exact!

That’s an 88% drop - 88%! Believe me, no one saw that coming. Not 88%!

It was 1946 before it broke 200 again. Tough sledding, huh? It can be. But that’s still five times 41.

In 1972, when yours truly was a freshman in college, it finally broke through 1,000. And, as always, the doom and gloom headlines and predictions were everywhere. One said 1,000 on the Dow was the beginning of the end of the world.

By the time I finished my undergraduate work in 1975, the Dow was headed back down to 577. A 42% drop!

That was some welcome to the work world!

Between then and now it has had major sell-offs in ’87, ’90, ’94, ’99, 2000 and 2008, and who knows how many minor sell-offs. And never, except in rare instances, has anyone accurately predicted any of them.

And the few that were called accurately came from folks who have never done anything but predict collapses. They had to be right eventually.

In fact, in 1999 and 2000, when we had been on a tear for a decade, no one was talking crash. The only thing anyone could talk about was when the Nasdaq would hit 10,000. Some idiot even predicted 50,000 on the Dow in ’99.

Anyway, here we are, me closing in on retirement and the Dow nearing 18,000 and, as always, there are headlines everywhere calling for the end of the market.

The market has and always will be a rough ride, but one that will make money, if you can ignore the headlines.

This week, stop for a second and think about how much money you’d be worth if, over the years, you had ignored the news stories predicting anything about stocks, positive or negative, and just let it be a market. One that has to go up and down.

And one of the few things I know to be true about the markets: When everybody is talking about it, it isn’t going to happen. Ask the folks who, for six years, have been predicting the collapse of bonds. Oops!

That’s it. Let it be! See you next week.

 

 

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