Your Money & Your Life
Never Make Predictions, Especially About the Future
I’ve quoted Yogi Berra before, but this time it’s baseball player and manager Casey Stengel stepping up to the plate with a title for one of my articles. As nonsensical as his statement might seem at first glance, there’s a certain practical truth to it. Even with advanced technology and PhDs interpreting the data, weather forecasts aren’t always right. Sports betting has been popular since ancient Greece, precisely because no one knows the outcome of a contest until it’s over. At the beginning of the 2025 season, ESPN ranked the Toronto Blue Jays 20th of 30 teams, with only a 39.2% chance of making the playoffs. Not only did they make the playoffs, they gave the LA Dodgers a serious scare, losing in the 11th inning of the 7th game of the recent World Series.
If most people understand that it’s chancy to predict the weather or the outcome of sporting events, why do so many try to predict the movements of the stock and bond markets or, for that matter, seek out the predictions of others? Consider this scenario: suppose on January 1st of this year, you’d been able to foresee continuing conflicts in the Middle East and Ukraine, the likelihood of tariffs being applied, rescinded, and reapplied, significant weather woes around the world, and the worst job market in recent memory for new college graduates. How would you have expected the stock market to react? I doubt that many would have guessed the S&P 500 would gain over 15% by the end of October.
Since it isn’t possible to predict the future, let alone the market’s response to it, what’s an investor to do? A good place to start is to remember that markets are generally leading indicators. That is, they tend to reflect investors’ expectations for the future rather than today’s headlines. I learned the aphorism “buy the rumor, sell the news” nearly thirty years ago as a newly minted stockbroker. Since markets tend to react before events occur, the effect of any one event is likely to be minimized by the time it happens. Another way to say this is that the effect of an event has already been “priced-in” to the market.
Markets are truly unpredictable, yet the collective intelligence of investors tends to respond to changes in the investing landscape with reasonable efficiency. I’ve heard the stock market described as the place where the smartest people in the world meet to trade, but I’ve rarely heard it described as rational. It isn’t logical to think of the market as having a mind of its own, but the collective decisions of all those thoughtful investors must make a certain amount of sense—even though the daily results regularly surprise us. The remarkably effective concept of crowd sourcing has been well described in the book The Wisdom of Crowds by James Surowiecki. If you’re not familiar with it, it’s worth a look.
Because markets generally move in advance of reality, it’s rarely profitable to base investment decisions on the daily news. Committing to an appropriate long-term investment strategy makes it easier to avoid responding instinctively to terrific or awful headlines. Market corrections are inevitable, and during them, investors often become afraid and start withdrawing their assets. The more sellers there are, the further prices fall and the more difficult it becomes to resist responding to the admittedly scary news. However, those investors who withdraw then face what I think is the greater quandary: correctly timing their re-entry. Those who decide to “wait until things improve” will, by definition, be buying back in at higher prices.
Let me be clear that Donaldson Capital Management has no special insights into what the future holds. Nothing about the future is predictable, including interest rates, inflation, or other market-moving factors. With that in mind, we aim to structure investment portfolios tailored to each client’s time horizon, risk tolerance, and spending goals. With proper planning, we believe it’s possible to weather the markets’ day-to-day storms and achieve reasonable long-term returns.
I’d like to close with a quotation from someone nearly as famous as Casey Stengel: “When the number of factors coming into play in a phenomenological complex is too large, scientific method in most cases fails. One need only think of the weather, in which case the prediction even for a few days ahead is impossible.” Who said that? None other than Albert Einstein, whom I suspect might have made a pretty good financial planner if he hadn’t been distracted by other pursuits.
Warren Ward, CFP®
Senior Investment Advisor
To learn more about Warren or read his previous articles, visit his profile page here.
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