When investing, stop trying to predict the stock market – you can’t
But most academic research on the stock market proves that it’s extremely difficult if not impossible to time stocks. Much of this is due to something called “The Efficient Markets Hypothesis,” a powerful, yet flawed theory which basically says that when thousands of smart investors are all looking at the same information, it’s difficult to find assets that are mispriced.
With that being said, this article also discusses a few other reasons that trying to time stocks is a generally bad idea. Not only does it rarely work, it can also stress you out. Most normal people don’t want to spend all their time staring at the stock market, there are better things to do than obsessing over money. My advice? Invest with a buy and hold strategy: Purchase a broad portfolio of assets, hold them over long periods of time and continue adding slowly to the value of your portfolio. This will get you where you want to be.
If you’re an investor, you probably think that market watching is more important than bird- watching. After all, it’s better to know that the Dow Jones industrial average is down 200 points than to know that the slabsided goatknocker often winters south of Chicago, right?
Well, for most people, probably not. When you go birding, you get some fresh air and you learn new things, like the fact that the rose-crested grommet loves to dine on persimmons, or that you should never disturb the nest of a hairy kneecapper.
When you watch the market, you get worries. If stocks are up too much, you worry that they will fall. If stocks are down too much, you also worry that they will fall. Once you start to worry, you raise the chances of doing something silly, such as selling everything and moving to a yurt in Patagonia. But if you really can’t help yourself, here are a few things you can do to ease your market worries.
First, bear in mind that very few people can predict market tops or bottoms. An old saying on Wall Street is, “They don’t ring a bell when a bear market starts.” You’re probably not going to get a warning about the next bear market on your Twitter feed. Well, an accurate one, anyway.