Mind Games: Limits of Foresight

In the realm of investing, we often yearn for the power of foresight, the ability to peer into the future and make perfectly timed market moves. However, even if we could know with certainty what future events hold, the art of predicting market fluctuations based on these events remains a daunting challenge.

Let’s rewind to a hypothetical scenario at the beginning of the year. Imagine we had informed you that during the coming year, a global pandemic would grip the world, leading to the shutdown of economies across the globe. Would that revelation have nudged you to hastily sell some of your stocks to safeguard your investments? And what if we had followed that with news that Pfizer, a pharmaceutical giant, would be the first company to unveil positive vaccine trial results? Would you have jumped at the opportunity to purchase Pfizer stock?

As it turns out, both of these events unfolded as foretold. However, the response from the stock market was far from straightforward. Pfizer, the beacon of hope with its vaccine development, saw its stock price remain virtually unchanged from the year’s beginning. Meanwhile, the S&P 500, the benchmark index reflecting the broader market, defied expectations by surging 10% by November 20, 2020.

These twists and turns in the market’s response to significant events highlight a fundamental truth: predicting market behavior with absolute precision is elusive. It’s a complex interplay of myriad factors, and even the most astute investors often find themselves humbled by its unpredictability.

The election season, a period fraught with speculation and market jitters, offers another illustrative example. Since 1949, market returns have shown no significant correlation with the political party in power. In essence, whether it’s a Democrat or a Republican at the helm, the market’s course remains largely independent of political shifts. Over this span of time, those who remained invested consistently have outperformed those who attempted to time the market based on political changes.

So, what’s the key takeaway from these compelling narratives? It’s a simple but vital one: to navigate the volatile terrain of investments, it’s imperative to adhere to a well-thought-out financial plan and investment strategy. Staying the course, rather than succumbing to knee-jerk reactions driven by the headlines or political events, often proves to be the wisest course of action. While foresight may remain elusive, a disciplined and strategic approach can help weather the unpredictable storms of the market with resilience and poise.

If you’re considering working with us here at Mosaic, we invite you to learn more about who we serve and how we help them. You can also contact us with any questions you have.

By Anthony C. Williams, CWS, ChFC, MRFC, CLU | Investment Advisor Representative | President & Founding Partner of Mosaic Financial Associates & Orthopaedist Advisory Group | Securities and advisory services offered through Cetera Advisors LLC, Member FINRA/SIPC, a broker/dealer and a Registered Investment Advisor.  Cetera is under separate ownership from any other named entity.

©The Behavioral Finance Network. Used with permission.