These are the headlines and articles that remind us of how foolish it is to make predictions about the short-term direction of the stock market.
Today's Dumb Thing said by a smart person comes from David Stockman, the man who invented Reaganomics in the 1980s. As former head of the Office of Management and Budget, this guy is certifiably smart. But here's what he had to say recently about the stock market.
‘Father of Reaganomics’ says ‘get out of the market’ — bond and stock market — ‘and put your money in cash’ -Marketwatch
Why is this a dumb thing to say? Because nobody, including Mr. Stockman, can predict what the stock or bond market is going to do in the short-term. So, why do otherwise smart people repeatedly make market calls like this?
Because there is no downside to being wrong. Even horribly wrong. Mr. Stockman has been predicting doom and gloom for the economy and the markets for years. He's been wrong every time, but that doesn't stop him from making this kind of dire prediction, and it doesn't stop the financial media from giving him a platform for it.
This kind of fear-mongering is not helpful for investors.
I'm often asked for my predictions about the market and the economy and I have developed a disciplined way to respond. I frame my predictions in terms of how likely it is that the market will crash, or boom, or just go sideways. My clients are more comfortable with this approach than they are with radical predictions of doom, gloom, or boom.
Preview of coming attractions
I'm collecting examples of dumb things, and I find there is no shortage of material. My biggest challenge is going to be prioritizing them in a way that will be both entertaining and helpful. Here are a few of the items in my collection.
"The market is headed for a decline of 50% or more within the next 12 months." (#1 Cable news financial channel headline from June 12, 2013.)
"Dow Drops 104 Points Because Trade Talks Aren’t Enough." (Barron's headline from February 21, 2019.)
"The market meltdown has just begun. Stay in cash and wait for the next big drop." (#1 financial newspaper from March 10, 2009.)
"The stock market is dead for the next 20 years. Short every rally." (#2 financial newspaper from August 20, 1982.)
"Sell everything now!" (Major Midwest Bank from February 2, 1996.)
For a deeper dive into the psychology of Smart People Saying Dumb Things, see this article.