Being Right
Stock markets continued their rise, with the S&P closing above the 5,000 level for the first time on Friday. The S&P 500 gained 1.4% on the week, and the Nasdaq finished up 2.3%. Both indices, as well as the Dow Jones Industrial Average, have risen 14 of the last 15 weeks.
The S&P 500 is also now 15% above where it was when the Fed started raising rates in March 2022. Given the pace at which rates rose and the inflation we incurred along the way, not many forecasts, if any, predicted where we are about 23 months later. But, as we’ve written before, forecasts about the macro future are a tough way to make money. This is a point Ned Davis also makes in his book Being Right or Making Money:
Over the years I have seen scores of very bright investment advisors turn into hugely successful gurus who blaze into the investment business with spectacular forecasts. Yet, I’ve watched each and every one of them crash back to earth when a big subsequent forecast inevitably proved wrong. The Bible says, “Live by the sword, die by the sword.” As my late friend Marty Zweig and I watched these forecasting gurus fail, we often said to each other, “Live by the forecast, die by the forecast.”
…Perhaps the biggest myth in financial markets is that experts have expertise or that forecasters can forecast. The reality is that flipping a coin would produce a better record. Therefore, relying on consensus economic forecasts to provide guidance for investment strategy is almost certain to fail over the long run.
Stocks have been rising, and many expect them to continue going up if and/or when the Fed starts lowering rates. But remember that the Fed lowered rates during the 2000-2002 downturn, and the Fed lowered rates all the way through the 2007-2009 housing downturn and subsequent Global Financial Crisis.
So…. if the Fed lowers rates, maybe stocks will go up, or maybe they will go down. Or maybe they’ll do nothing.
But good companies bought at reasonable prices that keep making money will probably do well no matter what the Fed or interest rates or Congress decide to do. You just need to turn over the rocks to find those companies.
“Charlie [Munger] and I don’t pay any attention to macro forecasts. We have worked together now for 54 years, and I can’t think of a time when we made a decision on a stock, or on a company, where we’ve talked about macro.” —Warren Buffett (2013)
Tweets of the Week
In Case You Missed it…
Multi-Bagger First Principles | Finding Stocks That 10x or More! w/ Ian Cassel (video)
The Science of Hitting’s Alex Morris dissects “Letting Winners Run” philosophy and strategy (video)
Fireside Chat with Dr. John C. Malone (video)
Broyhill Asset Management’s Q4 Letter to Investors
Massif Capital’s 4th Quarter 2023 Letter to Investors
The Meb Faber Show: From Shorting Tesla to Avoiding Hype! - Drew Dickson Explains (video)
Masters in Business Podcast: David Einhorn: Market Structures Are Broken
Value Hive Podcast: Aaron Edelheit: Dumpster Diving in Cannabis
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