10% ChanceJanuary 15, 2020 -
Categorized in: Uncategorized
Only a 10% chance.
According to the National Weather Service, there was only a 10% chance that last weekend’s monster snowstorm which we heard about for days would provide us with a mere 2-3 inches of snow. By their analysis, there was a 90% chance we would get more than 3 inches. See their explanation on the graphic by clicking this link, then click on the picture
Now we are being told to keep our eyes on the forecast for another potential winter storm this coming weekend.
After a forecast “miss” last weekend, I suspect that many people will view the forecast for this coming weekend with increased skepticism: “Last weekend they said we were going to get 11 inches of snow and it never happened. I bet they are wrong again this weekend.” Recent low probability events instinctively make people believe that more low probability events are coming.
The same is true in the financial markets. There are just as many – if not more – variables in projecting the short-term direction of the financial markets than a winter storm. At least weather forecasters can use complex computer models that take into consideration satellite imagery, radar, and jet streams to attempt to predict the future. Such time-tested tools do not exist in the financial markets.
Our core belief is that forecasting short-term storms in the financial markets is far less accurate than predicting the weather one week into the future.
Instead, we prefer to dig deeper into the purpose for your money. We then design a personal portfolio for you that takes an appropriate amount of investment risk to fulfill that purpose. We then help you maintain a disciplined process for continuing toward your goals through both high and low probability events.
While we do not believe in short-term market forecasting, be sure to keep your eyes on the weather forecast for this coming weekend. The odds of another low probability event are lower than you think.
Quote of the week: Robert Arnott: “It’s a natural human tendency to forecast the future by extrapolating the recent past. This is the reason people chase performance, which is, in turn, the root source of the most grievous errors in investing.”
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Any opinions are those of IAG and not necessarily those of LPL Financial. Expressions of opinion are as of this date and are subject to change without notice. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. No strategy assures success or protects against loss. Investing involves risk including loss of principal.