Ignore Market Noise

All the time you are executing The Plan you will be bombarded with “advice” from all directions. This advice will come in the form of articles with headlines like…

  • What’s Hot Now
  • 10 Stocks That Will Do Well Next Year
  • Experts Forecast Down Market Next Year

Predictions preceded by the word “Experts” appear often. It turns out, forecasts by “experts” have a negative correlation to what actually happens. In a paper published in July 2010, three finance professors from Duke University and Ohio State University published the results of an extensive survey they performed. Each quarter from March 2001 to February 2010, they surveyed “top U.S. financial executives.” They asked them to predict one- and 10-year stock market returns and also for their predictions of best- and worst-case outcomes. The data they gathered aggregated 11,600 S&P 500 forecasts.

You would think the accumulated expertise of these executives would permit them to make fairly accurate predictions about a commonly used index such as the S&P 500 (^GSPC). The opposite was true. The authors of the study found no correlation between the estimates of these top financial executives and the actual value of the index. In fact, the correlation was negative. When they predicted the index would decline, it was modestly more likely it would go up.

To read the article from which the above paragraphs were excerpted click HERE.

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