Based on the inherent fear and uncertainty, many investors feel the need to get some kind of prediction about what’s going to happen in the future. After all, if someone could just tell us what is going to happen with inflation, long-term interest rates, share prices, overseas markets, etc., there would be nothing to fear.
Along these lines, it is easy to be convinced that someone else really does have the information, power, and insight to forecast the future. You could become an innocent victim of wish fulfillment. It would be so much easier if someone really had the answers; it is easy to lose sight of the simple fact that is is just not possible to predict the future.
This explains why people are clamoring around investing programs broadcast regularly on CNBC, eagerly subscribing to Money magazine and voraciously perusing the internet in search of the next hot stock tip.
Believing that someone out there, whether it’s you, or the broker, or some money manager who’s on the cover of a magazine, can actually predict and forecast the future and pick all of the best stocks and post massive returns, is not the folly of weak minds. It is most often the folly of the most brilliant minds.
The Greeks called this phenomenon hubris. This is exaggerated pride or self confidence. People who have very high intellect often feel they can beat all kinds of games. They feel they can beat Vegas odds. They feel like they can pick the winner of the Super Bowl. They feel like they can consistently pick the best stocks.
Because man has used his intellect to reveal so much of the universe, and science has accomplished so much, it is easy to believe that if intellect can accomplish all of these things, then surely it should be able to be used to do something as simple as picking the best stocks.
The greatest fallacy in the investing industry is that this superior performance is a factor of skill and not luck.
This is not something that only weal minds or people who aren’t intelligent fall into. It’s easy to fall into these traps when they’re so pervasively put out there by the financial community, the media, and the public at large.
The Good News: You don’t have to have an accurate prediction about the future to be a successful investor.
Own Equities….Globally Diversify….Rebalance