Wednesday, April 21, 2010

Short-Term Predictions

Frequent readers of this site know that we don't believe short-term market movements can be predicted profitably. This opinion is not unique, as it is shared by some of the market's brightest participants. Nevertheless, it appears as though there will always be providers of short-term predictions, both for people who think short-term movements can be predicted and for those who don't but who consume short-term predictions anyway.

Consider these comments from stock market prognosticator Jim Cramer two weeks ago, one day before Goldman Sachs (GS) lost 13% of its value (on the news that it was being sued by the SEC):

I did some work today behind the scenes. My understanding of the current talks is that the big banks are the winners, not the losers. You will read that story in the papers 72 hours from now. Big banks are about to get their way. That is what is going on behind the scenes...a huge victory for JP Morgan and Goldman Sachs, and the other big banks. Yes, a huge victory. The press will not write that. I know better; you just heard it first, right here.

Of course, it is easy to pick on tv personality Jim Cramer. It's been done on this site before, and his picks have been ridiculed elsewhere rather frequently. But the truth is, he is likely no worse than others who attempt to crystal ball stock prices using a time-frame of hours or days instead of years. But he's more famous and more followed, allowing for easier dissection of his misses. (For example, consider the pushers of airline stocks just one day before they began their long descent.)

Cramer and others like him are not there because of their investing prowess (or lack thereof), but because they can entertain. The important take-away for readers is that they not confuse their entertainment choices with their investment decisions, which should be made with a long-term, rather than a short-term, focus.

Disclosure: None

This article was written by Saj Karsan of Barel Karsan. If you enjoyed this article, please vote for it by clicking the Buzz Up! button below.

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