At Park Piedmont Advisors (PPA), we advise clients that trying to predict future events, and the financial market’s reactions to future events, can often lead to disappointing results. Rather, we advocate ignoring most current events and focusing instead on long term financial goals and the cost efficient investments that help achieve those goals.
Here is an example of how even knowing future events can lead to disappointing results.
On Monday May 23, 2016, the US S&P 500 index was 2,048.
Since then, we have experienced the following events- some surprising- that, to most observers, would have been considered negative for financial markets:
- England’s vote to leave European Union (“Brexit”, June 23-24);
- Donald Trump elected US president (Nov 8);
- two Federal Reserve quarter point interest rate increases (Dec 14 and Feb 15);
- world wide hacking (mid-May);
- North Korea weapons testing (ongoing);
- Trump problems with FBI and Russia (ongoing).
Assuming you were able to predict the future and knew all this was going to happen, would you have thought the US stock market, as measured by the S&P 500 index, would be:
a) closer to 1800 (approximately 12% lower than mid May 2016);
b) 2100 (approximately the same as mid May 2016); or
c) 2300 (approximately 12% higher than mid May 2016)?
Of course, we now know the answer is the 2300, but who would have thought that before the fact?
The moral of the story is to try and ignore the short term news, and focus instead on your long term goals. This is the ongoing message PPA provides its clients. Contact us to learn more about our investing approach.