How to Warn Investors and Guarantee A Correct Prediction

The Warning

The CNBC headline warned investors: “Widespread overconfidence is putting investors in a dangerous situation, Invesco’s Kristina Hooper warns.” I typically skip right past such headlines. Yet my recent switch to a cautiously bearish short-term trading call made me more receptive to the big tease. I expected to read stock market predictions about the contours of a frothy market top. I expected to read about irrationally exuberant investors. Instead of a stern warning, the interview fell back to standard, conventional financial advice. This advice comfortably maintains a near tautological outlook that is correct no matter what happens.

Familiar Market Advice

Hooper offered a very familiar punchline: “…the most important thing we need to be focused on is being well-diversified.” She advised investors to have exposure to both secular growth, more defensive stocks and cyclical growth stocks. Hooper hedged her bets because “we don’t know exactly how this economic recovery plays out.” I personally do not recall a time of certainty for an economic recovery. Recessions and recoveries are by definition times of heightened uncertainty. At least Hooper did not advise the audience to focus on quality companies with consistent earnings growth.

The CNBC host was able to nudge Hooper into observing there is “some speculative fervor in markets and it’s similar to what we’ve seen in Bitcoin…I’m old enough to remember the tech bubble in the late 90s and that kind of speculative fervor we saw back then. There’s certainly some of that.” Hooper reminded these feverish investors to stick. to long-term investing tenets. She artfully dodged reaching the conclusion that the market must be topping out as history might suggest.

The kicker came when the host asked “What’s the best approach to investing right now?” You guessed it. “Take a long-term view.” Stay broadly diversified across asset classes and within asset classes.

Conventional market strategists offer the same exact advice almost no matter what is actually happening in the world. As a result, show producers and editors must get creative in packaging this content. I do not blame Hooper for offering nothing new despite the intriguing article headline. Hooper’s industry must live and breathe investing truisms or risk being called “wrong.” It is the job of conventional financial media to entertain and maintain interest.

Correct Warnings for Any Market

The CNBC host doubled down on my disappointment. He strongly recommended Hooper’s blog post which apparently formed the basis for this segment. In “Staying on guard against overconfidence“, Hooper asked investors to avoid expecting a market top or a continuation of the good times:

“I’m concerned that the strong stock performance we’ve seen since March, especially the new high made by the S&P 500 Index last week, may lead investors to draw some unwarranted conclusions about the future direction of the market — and to make potentially risky decisions about their portfolios in response…investors shouldn’t be overconfident in whatever scenario they expect.”

In other words, as always, avoid extrapolating from existing market conditions. Stick to a long-term investing plan. These truisms. guarantee being correct no matter what happens.

Real Market Predictions

Making actual market calls is surely a risky business. In just one trading day the stock market rotated out of Friday’s bearish divergence into a strong one-day rally. Advancers easily outpaced decliners, new highs beat out new lows again, and bullish signals outnumbered bearish signals (see Swingtradebot for details). The antidotes to seeking certainty and correctness are flexibility, defined entries and exits, and clear risk/reward propositions. Let the chips fall where they may. I remain bearish for all the same reasons I noted in the earlier post. I am getting ready and not making a point forecast.

The S&P 500 (SPY) gained 1.0% and hit a fresh all-time high.
The S&P 500 (SPY) gained 1.0% and hit a fresh all-time high.

Be careful out there!

Full disclosure: long Bitcoin

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