I’ve been hearing a lot of rumblings about the next recession recently. Just last week a podcast host went through great pains to explain why the next recession will hit within the next year. I even agree with some of the foundations of his economic arguments, but there’s always a leap of faith involved when a prediction is made, especially when it comes to an economic recession. Here are a few things to think about the next time you encounter one of these predictions:
- No one has a good grasp on what the market will do tomorrow, let alone what it will do in the next few weeks or months, or especially years. The reason it’s so hard to predict the market is that there are trillions upon trillions of data-points that all influence how the market will move. These trillions of data-points are also constantly moving, so even if you did have a pretty good grasp of what was happening in the market, five minutes later it will have all changed. It’s simply impossible for us to get a full picture of the happenings in the market.
- Even if you did have a solid continuous grasp of the trillions upon trillions of data points in the market as they changed, it would still be impossible to predict market movements because the market moves based on data in the future. Even if you understand the current market completely, unless you know the future you’re going to have a tough time predicting where it will go.
- Let’s pretend for a moment that you can see the future and you know for sure that a recession is coming, that would be awesome. But there’s still a problem, not only would you have to know for sure that a recession is coming, you’d have to know exactly what day it would begin and exactly what day it would end in order to profit from that knowledge. The market moves quickly, if you miss just a few of the best days (which often come right after recessions) it would have been better for you to remain invested and ride out the storm than to pull your money out and wait to get back in. Market timing is a deceptive thing. We intuitively think the best move is to get our money out of the market when a recession is coming, but the opposite is true. Even in the face of a recession, the best move is to remain invested. Unless you can comprehend trillions of data-points and know the future with an incredible level of specificity, don’t buy into the recession rumblings.