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Should You Rely On Market Forecasts To Make Investments?

The stock market is a fascinating arena where share prices bounce up and down like popcorns in a sizzling pan.

For some, guessing the direction of where the stock market is headed can almost become an obsession. And on TV and financial news outlets, there is no lack of people who provide their predictions (and logic) for why markets behave the way they are, and where they think it is headed in the short-term. As investors, should we tune in and listen, or tune out and ignore?

Let’s get back to basics and examine the underlying motives for making such predictions. As the stock market represents a venue for companies to raise money, it is often a subject of much discussion and speculation. Financial media outlets are simply fulfilling a desire for the average man in the street to know something which is inherently unknowable. As people generally dislike uncertainty and hate to believe that things happen for no reason, these news outlets and forecasters need to provide valid “reasons” for market movements, even if they have to invent one.

Remember that forecasts are also made to induce investors to trade more frequently, by instilling fear, doubt, uncertainty, greed, optimism and pessimism in them. These emotions are the bane of successful investing, as I had written about in a previous article, and ideally, the investor should try his best to distance himself from unwanted psychological influences which may derail his investment journey. The forecasters themselves usually have no clue as to what is going to happen, and we should also note that no one judges them on their accuracy or track record. In other words, no one is going to lose their job for getting a market prediction wrong. Therefore, you will hear all kinds of wild guesses as there is just no penalty for being inaccurate or misleading.

The correct thing to do is for an investor to stick to his investment plan, and to focus on investing in good, solid companies with strong balance sheets and free cash flows. Market forecasters do what they do because they need their jobs, and following these forecasts blindly would plunge the investor into serious financial trouble as you would be caught up in a whirlpool of emotions and end up making numerous investment mistakes.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.