Would You Bet Your Money on a Crystal Ball?

Gypsy Fortune-Teller

predicting marketsIt seems like just about any time the topics of investing, trading, or the markets come up someone is bound to ask where someone else thinks things are heading……….but why?

Why do we constantly feel the need to ask other people to provide insight, knowing that most of the time they are completely full of shit?

So this dude, Ryan Detrick, put out an article last week titled Why The SPY Will No Doubt Be Higher 12 Months From Now. Now, Ryan is a pretty smart guy. He’s got an impressive resume and looks good in a suit. With that said, here is his argument for why the SPY is basically guaranteed to go up for the next year:

Going back to 1995, the SPY has gained more than 27% year-over-year 29 times (not including the recent occurrence).  Check out the returns.  The SPY is higher 12 months later an amazing 29 out of 29 times!  Meanwhile, the average return a year later checks in at a very solid 16.6%.

It looks like Ryan has really done his homework, and his numbers back up his prediction flawlessly. However, I still have two problems with his prediction:

1. Nothing is Guaranteed

I don’t care if the market had gone up three million out of three million times that a particular situation occurred, there is still a change the the next time is different. To recklessly invest all of your money because the market SHOULD go higher over the next 12 months is exactly the kind of bone-headed decision that caused people to lose half of their capital in 2001 and then again in 2008.

Obviously, I’m a little biased in the other direction here. I don’t believe that there is any value in predicting where markets will go tomorrow, much less next week. If part of your strategy includes these types of predictions, then I assume you also have to include significant safeguards. Ryan doesn’t mention any of these though. That brings us to my second issue:

2. This Prediction is Out of Context

What does this prediction have to do with anything?

Without knowing a great deal more about what Ryan intends to do with this exclusive knowledge, how can we put it to use? Should be dump our entire IRAs into SPY? Half?

Without the context of how he, or anyone else, is considering applying this information it is just about worthless. We might as well just hand our money over to the lady with the crystal ball and ask her where to put it.

Maybe that’s a bit harsh. Ryan is obviously a pretty smart dude. My guess is that he has a plan to utilize this information in some sort of discretionary strategy by simply leaning a bit more towards the bullish side than he normally would over the next year or so….but he doesn’t say that.

So we are left to wonder…..