I believe it is important to revisit this concept often. Because investors have very short memories. They believe again and again that someone can tell them what will happen next to the equity markets.
This is one question most investors never think about. Primarily because the Wall Street bullies want you to believe that free markets DO NOT work. The bullies will continue to supply you with forecasts on what will happen to your finances.
First let’s look at the assumptions if Free Markets Fail:
- The market fails to price goods and services appropriately.
- It is possible for some individuals to identify in advance which prices are inaccurate.
- Underpriced or overvalued markets can be forecasted or predicted.
- By taking advantage of these miss-pricings, either in stocks or market sectors, it is possible to both increase returns and avoid losses in investments.
- People with this view would utilize traditional investment myths and speculate with their assets.
However if Free Markets Work.
- Based on supply and demand the free market is the best determinant of market prices.
- All available information is factored into the current price.
- Only new and unknowable information and events change pricing.
- The randomness of the market makes it impossible for any individual or entity to consistently predict market movements and capture additional returns unrelated to risk.
- People with this view would utilize free market investment strategies.
It is vitally important that you decide whether free markets work or free markets fail. This will determine how you will invest for your future.
If you believe free markets fail you should continue to invest in the traditional investment strategies of stock picking, market timing and track record investing. This would require that you stay connected to ALL sources of financial information. By following this strategy you will, in my opinion, be gambling and speculating with you investment money.
Ask yourself one question, do you really want to constantly stay connected to the equity markets?
If on the other hand, you believe that free markets work. You would concentrate on capturing market returns. Build a globally diversified portfolio. Identify YOUR risk tolerance. Eliminate the traditional investment strategies.
And finally, work with an investor coach who shares this belief.
The Wall Street bullies want you to believe that there is someone on Wall Street that can predict the future. This message is constantly bombarding the investing public thru the media and marketing campaigns. They need you to believe that someone can earn you above market returns AND avoid all large losses.
After many years of watching Wall Street I can tell you no one can consistently ‘beat’ the market.
You will never have peace of mind with your investment dollars if you continue to seek the ‘hot fund manager’ or the next ‘hot stock’.
Any investment that requires an accurate forecast of the future is destined for failure because the equity markets are random and unpredictable.
To determine if your portfolio is built to take advantage of the free markets or built on the assumption that free markets fail view Portfolio MRI . You will learn what is required to take advantage of the free markets.
Keep in mind there will always be examples of those who beat the market however it is extremely unlikely that they can repeat.
To succeed in investing for a lifetime you need to follow three simple rules:
- Own equities
- Globally diversify
Your investor coach can help you stay disciplined throughout your life. As you age your coach will help you adjust your risk to assure you reach your financial goals.