Wall Street Self-Defense

DATA: I've been reading Slate's The Complete Guide to Wall Street Self-Defense by Henry Blodget fairly regularly. While all of the columns have been good, the latest addition, Smart? Skillful? Probably Just Lucky: The (vast and unappreciated) role of luck in investing is right on the money when it comes to the ridiculous business of stock forecasting.

It's that time of year again. […] And, as usual, most strategists are predicting that the market is going to go … up.



Which is understandable. Because the market usually does go up. If not for the exact reasons that the strategists predict, well, then, just because it usually goes up. From 1872 to 2003, according to data compiled by Yale's Robert Shiller, the S&P 500 rose in 83 of 132 years (63 percent) and fell in 49 (37 percent). Strategists who predicted the market would rise every year, in other words—regardless of the logic used—would have been right nearly two-thirds of the time. In the investing business, you can make a lot of money and acquire a solid reputation if you are right two-thirds of the time.