Clouds Ahead: Conflicting Messages

Personal Money Planning |

By Gary Silverman, CFP®

Someone agrees with you. Someone disagrees with you. That begins our problem today in my whacking-you-with-a-fish series.

Today’s message of caution comes from an email I received with click-throughs for various investment-related articles. I found two of the click-thru titles a good example of a problem with experts. Let’s take a look:

“BofA Stock Indicator Sees S&P 500 Surging 16% -- That would leave the S&P 500 trading at 4,800 by year-end, or 5,200 a year from now, Bank of America data shows.”

“Gary Shilling Warns ‘Violent’ Stock Drop Could Be Ahead – The Fed will eventually drive investors to their ‘puke point’ where they can’t stomach another stock, Shilling says.”

For those of you who don’t keep up with the financial press, Shilling is a well-respected economist. So here we have two titans from the field of finance telling you two very different stories of what’s ahead in the stock markets. Who’s right?

Most people will say it’s the one who agrees with their current viewpoint.

The science of psychology tells us that we humans have a tendency toward Confirmation Bias. This is a phenomenon where we’ll put on a pedestal information that agrees with what we believe is true and disregard information that challenges those beliefs.

Taking confirmation bias into account, if you believe that the stock market is going to go up for a while then you are more likely to click on the Bank of America article. After all, a big company like that must know more than this Shilling guy I’ve never heard of.

Or, if you believe we’re in for another stock crash, then you’ll click on Shilling’s article. After all, he’s a smart guy who is held in admiration by many in the financial world. BofA probably just wants me to buy more stocks from their Merrill Lynch subsidiary.

Then there’s the rest of you who don’t think a lot about the stock market. You are just confused. Why does it seem that I hear good things from one group of analysts and warnings from another? That answer is simple: they are all guessing. Albeit these are educated guesses, none of them have the gift of prophecy.

There is always good news and bad news out there, the combination and effect of which is a bit complicated. Which is why most studies show that these predictions, across time, are worthless.

Okay, maybe not completely worthless. That’s why when I’m presented by two articles like those above, I’ll either read neither (to save time), read both (to get a balanced viewpoint), or read the one that I think is wrong (to challenge my preconceptions).

What I don’t do is only read the article that I agree with. That is, unless I’m having a bad day and want someone to tell me how I’m right about things so that I can feel good about myself.

May God protect the innocents in Ukraine.