There’s a statistic for everything, especially in investing. Writers and financial experts love to pick out minutiae from the markets and posit that they mean something BIG and EXPLOSIVE about the state of the economy — and now that you know it too, you have some sort of investing edge. (If you were paying attention to all of these posts, about a million different indicators flashed that a recession was “imminent” in the past few years, and, well.) If you want, you can get market information down to the second.
But there’s no stat that’s going to help you “beat” the market consistently. There are just too many variables, and no one actually knows what the market will do. As Michael Batnick notes in his post on the Irrelevant Investor, Jack Bogle wrote in his book Enough:
Numbers are not reality. At best, they are a pale reflection of reality. At worst, they’re a gross distortion of the truths we seek to measure.
There’s enough information out there that you could spend all of your time parsing stats to “optimise” your investments. “The reason certain people eat this up is because it provides the illusion that we live in a world where the future will resemble the past,” Batnick writes. But predicting the market, as with life, is impossible.
That’s not to say you shouldn’t familiarise yourself with its ebbs and flows (after all, that’s the information we’re using to recommend that people invest in low-cost mutual funds) — but you don’t need to bury yourself in superfluous statistics that have no real bearing on the future. Writes Ben Carlson, director of Institutional Asset Management at Ritholtz Wealth Management:
Being a student of market history can be helpful in a number of ways:
It can help you prepare for a wide range of outcomes.
It can show you how human nature can take things to extremes.
It allows you to think probabilistic-ally about the future based on present circumstances.
It aids in the expectation setting process.
It proves almost everything in the markets is cyclical.
But studying market history does not:
Help you peer into the future.
Tell you exactly how investors will react under certain conditions.
Show you how to avoid overconfidence.
Take into account the fact that markets are constantly evolving.
Teach you how to handle situations that have never happened before.
Give you the map to future market returns.
Being an informed investor is important, but there’s no statistic that will tell you what the market is going to do next. Embrace the uncertainty.
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