When the Labor Department revealed that the CPI rose 8.2% in September, almost anyone could have predicted that stocks would plummet the next day. And while they did exactly that the following morning, that afternoon they did something completely unpredictable—they rose almost 3% in one of the largest intraday swings in history. And they’ve kept on rising—up about 9% since that low on October 13th. That kind of unpredictability is why it’s vital to devise a long-term plan and stick to it rather than chase an elusive high, writes Jason Zweig in a piece for The Wall Street Journal.
While it’s often said that “investors hate uncertainty,” what they should really detest is certainty, Zweig maintains. The markets have been “certain” about many things this year—that the Fed would cut rates back down in 2023 (something no one expects anymore), or that Tesla’s growth would never slow after the company gained $200 billion over four days last December (the company has lost 36% so far this year), or that stocks would gain between 6% and 11% in 2022 (the S&P 500 has dropped almost 20% instead). Other “certainties” include the “quality stocks” that Wall Street once touted and have underperformed the S&P 500 by about 4% this year, or that gold and crypto were safe hedges against inflation, now down 9% and 50% this year, respectively.
But investors and Wall Street professionals aren’t the only ones who think they can cash in on correctly predicting what the market will do. According to The Journal’s recent investigation “Capital Assets,” about 85 senior federal officials, their financial advisors or their family made over 80,000 trades over the 5-year period from 2016 to 2021. One official’s spouse made over 9,500 trades in one year. But chasing short-term gains isn’t a recipe for long-term success. “Self-control is a key to investing success, but so is fending off self-delusion,” Zweig writes. And now, as companies once thought invincible, like Meta, report disappointing earnings and lose billions in market value, it’s more dangerous than ever to cling to a belief that is anything but certain. Any prediction that sounds absolute should be looked at with doubt, Zweig advises, and researched extensively before taken seriously.