To Succeed in Stocks, Stop Guessing and Start Reacting
Focusing on predicting the future leads to bias that undermines your ability to clearly view your holdings.
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If you asked the average person what skill or ability is needed to produce exceptional market returns, the answer would probably have something to do with the ability to predict the future. If you can predict the future, finding ways to profit is quite simple.
The reality is that exceptional investors are not necessarily skilled at forecasting. They don’t have some special power to see around corners. Stanley Druckenmiller, one of the greatest traders of all time, famously noted that he has been "wrong" plenty of times on the direction of the market. His edge isn't a crystal ball; it's his ability to recognize a shifting backdrop and change his mind in an instant.
My favorite quote about the stock market comes from George Soros, Druckenmiller's former partner, who once said: "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."
The key to success is to quickly grasp when conditions are changing and react quickly and aggressively. Great traders don’t know what will happen in the future, but they do know what is happening right now, and they act aggressively to profit from it.
The Wall Street Prediction Trap
Wall Street sells itself to investors with claims that it has special insight and will help guide you to a steady stream of profit. What Wall Street "experts" don’t tell you is that they have very limited ability to predict the future and are even worse when it comes to timing.
The best investors don’t sit around trying to figure out which way the indexes will move next week. They focus on current conditions, evaluate fundamentals, and look for emerging themes and ideas. The folks who made the most money from AI, Bitcoin, and other major themes didn’t necessarily predict the technology years in advance. They recognized it early and invested aggressively.
Great investment results are mostly a product of catching themes and ideas early and pursuing them aggressively. Conviction, coupled with concentrated investment, is how the rich become much richer.
The Index Illusion
The best advice I can give is to pay far less attention to the indexes. It is difficult to ignore them, because they are the primary news topic in the financial media. However, the indexes don’t even do a very good job of doing what they are supposed to do, which is provide a convenient way to evaluate what most stocks are doing.
Most indexes are constructed using capitalization weight. The bigger the market cap, the bigger the weight. A stock like Nvidia (NVDA) or Apple (AAPL) — members of the Magnificent Seven —offsets the action in hundreds, if not thousands, of smaller stocks. The Dow Jones industrial average is even worse. It is price-weighted, which means the highest priced stock has the most weight.
How can that be an accurate portrayal of market conditions? My personal experience is that focusing on indexes often leads me to make poor trading decisions. When the pundits are yelling "overbought" and "expensive," that may have no relationship at all to the individual stocks that I’m holding.
Cultivating Objectivity
The most important thing you can do is stay vigilant and understand the cross-currents affecting the market. That provides the context for identifying when stocks are a good buy or when a theme or trend is developing. Price action is the ultimate proof and at the end of the day is the only thing that matters.
Embrace the fact that you don’t know the future. I have no idea where the market will be at the end of 2026, and I don't even want to think about it. Once you start focusing on predicting the future, you create a bias and undermine your objectivity. We could have a crash or a historic rally. There are plenty of very smart people on Wall Street who can make a good argument for either outcome. Someone might get it right, but that isn't going to make me money.
If you want to be a great investor, forget the game of predictions and focus on aggressive reaction to shifting price action.
At the time of publication, DePorre had no position in any security mentioned.
