The Dirty Secret That Wall Street Doesn't Want You to Know
Everyone picks stocks that turn out to be duds, but here's where the big money is made.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
Providing advice to investors is big business on Wall Street. This usually comes in the form of predicting the stock market's future and picking stocks that will appreciate substantially over time. Billions of dollars are spent researching and predicting what the indexes and individual stocks will do in the future. Most of what you see in the business media every day is about predicting what will happen next.
The dirty secret of Wall Street is that it isn't very good at predicting the future. Wall Street's best advisers and stock pickers are not just wrong a substantial percentage of the time but are wildly inaccurate. No market strategists even came close to predicting how much the S&P 500 would increase in 2024. Even when someone does make an accurate call, the timing is never exact.
Today's market genius is tomorrow's fool. No one in the history of Wall Street has been able to predict the twists and turns in the market with high precision over many years.
The problem is that very few folks on Wall Street will admit that their great call was just good luck. Every prediction is backed by compelling arguments, making it difficult to discern whether a correct prediction is skill or luck. An element of skill is involved in predicting the future, but everyone ignores how much luck influences the outcome.
One of the significant turning points in my trading career was when I started to recognize that trying to predict the future wasn't the best way to navigate the market. Making a prediction and hoping it was correct was a recipe for disaster.
There was no way I could avoid being gloriously wrong about the market or an individual stock on a regular basis. Even if I could guess where the market would be a year from now, the big money would be made in navigating the many twists and turns along the way. Making predictions wasn't going to make me rich.
The key to stock market success is having a strategy so that when you are wrong, you are prepared to deal with it quickly and efficiently, and when you are right, you press the advantage and rack up significant gains. One of my all-time favorite Wall Street quotes is from George Soros: "It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong."
People in the business media make public predictions all the time, and they are wrong a lot. They are often harshly criticized for their inability to predict the future, but what is far more critical is whether they are prepared to be wrong. Do they have a strategy in case the next bull market isn't starting tomorrow like they predicted? Everyone picks stocks that turn out to be duds, but the primary issue should be how you deal with this inevitability. How do you limit your losses when you are wrong?
There should be no shame in being wrong about the market or a stock. Most people would be far better off if they embraced their mistakes with gusto and quickly pivoted to a new course of action.
It isn't the bad predictions and mistakes that will cause big losses. It is the failure to have a strategy to deal with the many times you fail to accurately predict the future.
Wall Street will continue to lie to you about its predictive skills abilities. Don't waste your time and money relying on those lies. Focus on being ready for the things you didn't see coming.
At the time of publication, DePorre had no position in any security mentioned.
