Throwback Thursday: Can the Stock Market Be Predicted?
Value Investing Journey is dedicated to developing the world’s best value investors. In that vein, I occasionally answer questions related to value investing, finance, learning, mental models, etc., on the crowdsourcing site, Quora. I hope you enjoy the question above and answer below.
Below is an answer I wrote on Quora to the above question. The question and answer are important to how we all learn our craft of value investing, so I’ve decided to post it here as well.
If you’d like to follow my other value investing, finance, and other answers on Quora – answers that have now been viewed more than 110,000 times – you can do so here.
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As of this writing, the answer below has been upvoted 69 times on Quora – by far the most upvotes on any of my answers on the site.
I hope this helps you as well.
Can the Stock Market Be Predicted?
Some investors think they can predict the market a few days or weeks out using technical indicators.
Most of these investors are traders, momentum investors, or are playing on short term macro trends.
Most value and other long term investors don’t believe in or use technicals at all.
The best thing I’ve ever read on trying to predict the short and long term movements of the markets went something like this:”If it was possible to predict where the market was going in the future with specificity, why does anyone get caught with their pants down when the bubble pops?”.
Another of my favorites on predicting future market movements is from Ben Graham: “In the short run, the market is a voting machine but in the long run, it is a weighing machine.”.
Meaning that in the short term, markets move based on emotion, psychology, fear, and hope – but in the long term, investments are based on what the company has for assets and what the company earns from its operations.
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