Is it possible to predict Markets accurately?

If I have noticed anything over these 60 years on Wall Street, it is that people do not succeed in forecasting what’s going to happen to the stock market. – Benjamin Graham

Hi there,

Recently I got a mail from a reader who wants me to predict accurately where the stock market is headed, instead of a broad market analysis. He wants a definite conclusion and a definite direction about what to do.

First of all, in my opinion, it’s not possible to accurately predict Market movements. Making buy or sell decisions by predicting market movements is a strategy called ‘Market timing’.  It’s one of the most controversial topics in stock markets. The viability of the strategy is something that’s debated for years now.

There are brokers and analysts who claim that they can predict exact market movements. I’ve tested their services once and that was a disaster. Apart from that, there is no first hand experience to write about . But, I know many people who have availed paid services of these so called market forecasters. Nobody so far, has given me a 100% positive feed back.

The second point I would like to mention here is that no two investors are alike.  Risk bearing capacity, expected returns, investment horizon, investment objectives etc are different for every investor.  What’s good for one may not be good for another. So there’s no meaning in those calls ‘to buy’ or ‘to sell’ a particular stock which is not based on individual preferences.

So, now, the first question is – then, what do we see in these newspapers and websites about the future of the markets? Well, you have to take those comments in the right context. Chartists and analysts comment on the general trend of the market, they are never stock specific. At best, they may specify certain sectors that may be positively or negatively impacted by the economic events that are going around nationally and internationally. It’s up to the investors to do some homework and try to find whether those factors need to be considered in their investment decisions.

Secondly, what about those stock specific buy calls or sell calls that appear in newspapers and television channels? What they give out is their opinion based on historic data and future prospects. Whether that particular stock is suitable for you to invest is something you have to evaluate based on your investment objectives.

There maybe big investment houses or big investors out there who have systems and experience to predict the market and make a killing. If they have, well, they are not going to disclose that to anyone. Even Mr. Warren buffet has never written a book on how he makes investment decisions. For the common investor, the option is to use publicly known information from their brokers or analysts or try some paid softwares or develop own systems, which yield excess returns.

Market report generally combines technical as well as fundamental data. Common investors should have at least basic understanding about these. The Internet is the ultimate library, hosting hours and hours of reading materials in every subject imaginable. And, the subject of investments is no different. Several free resources offer beginners strategies for investing and basic definitions of the terminology used. It’s important to prepare yourself by reading these materials before you try to read and understand a market analysis report.

HAVE YOU DEFINED YOUR INVESTMENT OBJECTIVES?

In one sentence, any investment objective would be – In 20xx I need to create an income/wealth of Rs xx xx xx . The objective should be to get ‘optimum returns’ and not ‘maximum returns’. Getting maximum returns would mean that you have to take maximum risk. So the basic objective, in my opinion ,  should be to optimize return on investment.

How? The first step should be to do a SWOT analysis of your self and find out where you stand right now.

Strengths – would be a list of what you own –Gold, property, parental wealth , cash , alternative sources of income, Knowledge, Support, money management skills, facilities and the platform available for investing.

Weaknesses – would be a list out what you lack – Risk tolerance capacity, money management skills, lack of alternative income source, still living in a rented house…

Opportunities – considering the investment capital you have, try to find suitable opportunities. For example if you think you can invest only a small sum, there no point in looking at real estate or solid gold.  SIP’s or gold ETF’s could be a better way to start.

Threats – Inflation risk, interest rate risk, peer group pressures etc…

By listing out your strengths and weaknesses, you will be in a position to evaluate yourself first. Once you have done that, those market analysis and investment recommendations may make sense.

have a nice day !!

You may like these posts:

  1. Keep an eye on the factors that cause volatility in stock markets
  2. Technicals vs Fundamentals.
  3. Technical Analysis

3 Responses to “Is it possible to predict Markets accurately?”

Investing For Beginners

December 9, 2011 at 5:05 pm

I just would like to say thanks to the author and encourage to create much more similar valuable content. It will be a important help for beginners.

Bert Hobday

December 17, 2011 at 4:18 am

Good work writing this. It’s interesting article and I am interested in the subsequent few posts!

Venmathi

September 18, 2016 at 11:40 pm

You are correct when you say that the movement of the market cannot be predicted.
Why? As far as I know it is in the hands of a few Big operators and nothing else. Global cues, monetary policy, inflation are mere alibis to move or bring down the Markets. This
truth an investor, trader and researcher should know.

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