Nobody knows what the market will do next

Every evening, the news explains why the market went up or down that day. The next morning, someone predicts where it will go next. Neither is very useful.

Most movement is noise

Here are all monthly returns of the S&P 500 since 1993:

About 65% of months were positive and 35% negative, scattered with no usable pattern. Explaining each one after the fact is easy; predicting the next one is not. Studies of professional forecasts — of markets, interest rates or recessions — find that they are wrong about as often as they are right.

The three things to accept

• Predictions — nobody knows where a market will be in a year, including insiders and central bankers.
• Noise — most news has no lasting effect on prices. Reacting to it costs money.
• Uncertainty — it never goes away. The goal is not to remove it, but to have a process that works without certainty.

Investing without forecasts

A systematic approach replaces "what will happen?" with "what is happening?" A trend rule does not predict; it reacts to what prices are already doing — and accepts that it will sometimes be late or wrong (whipsaws). Over many decisions, that is more reliable than any forecast.

Related: why most investors underperform

By Dr. Harry Hamann · 4 min read