Don't try to be a fortune teller; predicting stock moves is impossible

Q: How can I spot a major rotation in the stock market before everyone else does?

A: We’re all trying to predict the future. But unless you’ve found a crystal ball that actually works as a clairvoyant with market experience, we’re all in the same dilemma: We can’t predict the future.

Some self-professed market experts talk a great game. They claim they correctly called past market moves, although few can actually prove it, they cook up convoluted theories about what stocks will do in the future and sell books, tapes and appear on TV.

But don’t be fooled. Decades of academic research has proven stocks are appropriately priced over the long run. And in the short-term, stock prices move randomly and violently, making it nearly impossible to profit from moves.

Are there chances to make money from these short-term swings? Yes.

There are some research firms that have created interesting ways to find potential inefficiencies in stock prices. But there are problems here, too.

First, the research is often so expensive just buying it would obliterate the returns of most individual investors.

Second, if research is discovered to provide an edge, it’s quickly copied. And when research is copied and widely disseminated, it no longer has predictive power for investing.

But don’t lose heart. While its highly unlikely you can predict market moves, you can at least keep up with current trends. It’s valuable to track the stock market’s movements if no other reason to be an economically aware person familiar with trends in companies, industries and investments.

Source: USA Today

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