Prophets and Profits: Beware Those Cloudy Crystal Balls

A friend of mine tells about a former colleague, a stockbroker, who was famous around the office for his frequent, dire financial predictions. “He successfully predicted five of the last two bear markets,” my friend remarked.

On the other side, there are those who seem to be constantly touting the next can’t-miss breakout on the upside. These supposed gurus are usually selling something: a book, a subscription to their newsletter, or even an investment product.

It’s easy to understand the attraction of both types of “prophets”; their messages, both positive and negative, play directly into the fear-greed cycle that preoccupies many investors’ attentions. As the human central nervous system evolved over millennia, it became extremely efficient at two tasks: helping us avoid threats and urging us to capitalize on opportunities. These basic emotional behaviors are on vivid display in the financial markets, and both the doomsayers and the evangelists of prosperity are skilled at manipulating them in the most advantageous direction.

In this connection, Harry Dent often comes to mind. Mr. Dent made his first major mark with the 1993 publication of his book, The Great Boom Ahead: Your Comprehensive Guide to Personal and Business Profit in the New Era of Prosperity. Dent’s rather wordy title proved fortunate in its timing; stocks and the economy enjoyed one of the longest peacetime expansions in history during the remainder of the 1990s. Hailed as the financial seer of the age, Dent’s book sales certainly demonstrated a bullish trend.

Dent’s next offering was The Roaring 2000s: Building the Wealth and Lifestyle You Desire in the Greatest Boom in History, released in late 1999 just before the dot-com bubble burst, helping the stock market into a downward slide that would eventually cut its value in half. His next four titles proved similarly ill-timed, with the first predicting a boom that never came and the next three auguring crashes or other economic calamities that failed to materialize–and all, of course, aiming to show readers how to profit from the scenarios forecast by Dent.

What’s an investor to do? When so many “experts” offer such differing predictions, who is to be believed?

We believe the proper response is usually, “None of the above.” Rather than trying to chase the economic or market theory du jour, we counsel our clients to develop a sound investment strategy that takes into account their goals, their resources, and their anticipated needs. We help them diversify their holdings in ways that mitigate market volatility and prudently distribute risk. We base our recommendations on reason and research, not on emotion, and we coach our clients to pay more attention to long-term strategy and proven investment principles than to the latest headlines or the prognostications of pundits.

Of course, this approach fails to offer the thrills or drama that feature prominently in the advice of Harry Dent and his colleagues. But we have also found, over the years, in good markets and bad, that it provides what our clients most desire: dependable performance.

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