Secret 6THOSE WHO USE CRYSTAL BALLS EAT CHIPPED GLASS

“It is not for us to forecast the future but to shape it.”

— Antoine de Saint-Exupery

Every one tries to beat the market by trying to predict the

future. The problem is that 90% of all investors are horrible failures

at trying to predict short term moves in stocks, indexes and

futures. Even the professional shows a dismal record.

Study after study shows that 80% to 90% of the stock mutual

funds underperform the indexes and stock market averages

year after year. This means that investing in an Index Fund where

no management is involved is wiser than investing in a mutual

fund of stocks. There is no need to pay those management fees.

This also tells you that future stock price actions are unpredictable.

When the pros, who are paid hefty salaries, can’t beat

the averages, who can?`

In fact, the brokerage firms spend millions and millions of

dollars trying to find systems that will predict future stock and

commodity prices, and their results have not been good. Some of

our top scientists spent millions of dollars trying to develop a system

for predicting stock prices and were unsuccessful. (However,

they were able, after extensive research and testing, to develop a

system to predict index prices. Check out the book, The Predictors

by Thomas A. Bass.)

Hence, there are no crystal balls for predicting the markets.

Academic studies strongly suggest that the markets move randomly

( Check out A Random Walk Down Wall Street by Burton

G. Malkiel, now in its 8th edition.) And, if the top brains and specialists,

backed by millions of dollars, can’t beat or predict stock

movements, why should you be able to do so? Therefore, the best

way to approach the markets is to assume that they are random.

Many investors that I have encountered have a totally irrational

view of their ability to predict the market. On numerous occasions,

investors have asserted that they were 99% sure that the

market would move up or down, and most of the time they have

been wrong. In fact, some have become angry when I say that the

markets approach randomness.

The problem that all investors face is that the markets are

very efficient. That means that they have digested and discounted all the information that is available and, thus, have discounted

present trends and potential future events.

Furthermore, in this information age of the internet, this

discounting occurs very rapidly. For example, the stock market

moves six months before events occur, such as a recession bottom.

Consequently, almost all future price moves are based on

surprise news and events not available to the public.

As for trend followers, trends can be changed radically by

chaos theory , which states that small unrelated events can have

a major impact on future events or trends. Therefore, it is best to

assume the markets are random, rather than try to predict and

bet on the unpredictable.

The big advantage to options is that you don’t need a crystal

ball. In fact, you don’t have to be right about the market 50% of

the time. Some option strategies win 90% of the time regardless

of what the market does. If you are an option buyer, one winner

can pay for many losses. As a result, you can be wrong about the

market most of the time and still be a winner.

In my Complete Option Report, when making recommendations

over seventeen years, I assumed that the markets were random.

We always recommended three puts and three calls for

purchase in each issue. Even with this random approach, the options

theoretical portfolio showed impressive returns over that

period.

So, throw out your crystal ball and trade options!

“It is not for us to forecast the future but to shape it.”

— Antoine de Saint-Exupery

Every one tries to beat the market by trying to predict the

future. The problem is that 90% of all investors are horrible failures

at trying to predict short term moves in stocks, indexes and

futures. Even the professional shows a dismal record.

Study after study shows that 80% to 90% of the stock mutual

funds underperform the indexes and stock market averages

year after year. This means that investing in an Index Fund where

no management is involved is wiser than investing in a mutual

fund of stocks. There is no need to pay those management fees.

This also tells you that future stock price actions are unpredictable.

When the pros, who are paid hefty salaries, can’t beat

the averages, who can?`

In fact, the brokerage firms spend millions and millions of

dollars trying to find systems that will predict future stock and

commodity prices, and their results have not been good. Some of

our top scientists spent millions of dollars trying to develop a system

for predicting stock prices and were unsuccessful. (However,

they were able, after extensive research and testing, to develop a

system to predict index prices. Check out the book, The Predictors

by Thomas A. Bass.)

Hence, there are no crystal balls for predicting the markets.

Academic studies strongly suggest that the markets move randomly

( Check out A Random Walk Down Wall Street by Burton

G. Malkiel, now in its 8th edition.) And, if the top brains and specialists,

backed by millions of dollars, can’t beat or predict stock

movements, why should you be able to do so? Therefore, the best

way to approach the markets is to assume that they are random.

Many investors that I have encountered have a totally irrational

view of their ability to predict the market. On numerous occasions,

investors have asserted that they were 99% sure that the

market would move up or down, and most of the time they have

been wrong. In fact, some have become angry when I say that the

markets approach randomness.

The problem that all investors face is that the markets are

very efficient. That means that they have digested and discounted all the information that is available and, thus, have discounted

present trends and potential future events.

Furthermore, in this information age of the internet, this

discounting occurs very rapidly. For example, the stock market

moves six months before events occur, such as a recession bottom.

Consequently, almost all future price moves are based on

surprise news and events not available to the public.

As for trend followers, trends can be changed radically by

chaos theory , which states that small unrelated events can have

a major impact on future events or trends. Therefore, it is best to

assume the markets are random, rather than try to predict and

bet on the unpredictable.

The big advantage to options is that you don’t need a crystal

ball. In fact, you don’t have to be right about the market 50% of

the time. Some option strategies win 90% of the time regardless

of what the market does. If you are an option buyer, one winner

can pay for many losses. As a result, you can be wrong about the

market most of the time and still be a winner.

In my Complete Option Report, when making recommendations

over seventeen years, I assumed that the markets were random.

We always recommended three puts and three calls for

purchase in each issue. Even with this random approach, the options

theoretical portfolio showed impressive returns over that

period.

So, throw out your crystal ball and trade options!