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« Learning from Mistakes: The Short Sale Ban | Main | Economic LIteracy: Do You Meet the Test? »

December 25, 2008



The market is unpredictable we all know that. However, I still would like to read stock market analysis based on the market's trend, performance and long term record of success from a trading network.


Mike C -- You are certainly asking the right questions and that puts you ahead of nearly everyone. Defined the way you are doing it, there are not enough cases to judge the accuracy of any investing method. That is one of the main points of the football analogy -- lots of cases and a fast refutation for most systems.

I have a destination in mind for this series, and future articles will answer more of your questions.

I suggest that you start with a couple of critical moments from last fall and ask whether the results were inevitable. Decisions about Bear and Lehman would be two good candidates.

Thanks for another thoughtful comment.


Mike C

Should we follow pundits who predicted these two blowouts? Or is it better to look to long-term records of success?


Question for you, and I am very interested in your response to this. In your view, how would one go about *exactly* differentiating between pundits/strategists with long-term records of success versus the blind squirrel who predicted the blowout of the week. Isn't that a pretty fuzzy qualitative assessment that depends on where you select your starting and ending points?

For example, and I won't name specific names because you said you don't want to go down that road, but here it is.

You've got two very well-known, highly regarded (by others in the professional investment community, I suspect their writings/letters are #1 and #2 in terms of what other investment pros read and pay attention to) who both appear to have correctly predicted the "blowout of the week" as they were both bearish on the economy and stock market in late 2007/early 2008. Incidentally, they have both switched to being cautiously bullish on stocks.

Having said that, one could argue they both were very early, and looked wrong and stupid for some time. Can the unsustainable be sustained much longer then can possibly be expected. However, going back even further, one could argue they both nailed the long-term return of the broad stock market (7-10 years) if you go back to 1998-2001 at a time when most likely 95-99% of strategists were predicting the continued 10%ish annual returns.

When is the long-term the long-term? 2 years, 3 years, 5 years, 10 years? Does it matter if one is "right" for 2-3 years if ultimately the market takes that back and makes one wrong for 5-10 years?

Now you've got others who I truly would put into the perma-bear, financial Armageddon camp who appear to be basically calling for the total collapse of the U.S. economy and dollar, and are predicting that the worst is still yet to come for both the economy and the stock market. They also called the "blowout of the week" in terms of the economy and stock market in 2008. In fact, one has a very popular YouTube video that demonstrates the "brilliance" of his call, and is now a regular guest on just about every CNBC discussion of the market and economy.

Differentiating between long-term record of success and a lucky blowout call of the week is obviously critical, but I'm not sure how simple it is in practice?

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