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Beware Predictions and Magic Elixirs

Published on July 28, 2020
The market and economy have gone through unprecedented events with a global pandemic, the shut-down of economies, massive government intervention and dramatic market swings. In the wake, marketers and pundits are in full force touting recent short-term results along with market predictions and a slew of slick products to go with them. While things may have stabilized, there is still an abundance of uncertainty. Now is not the time to make dramatic changes to your overall investment approach. Taking a long-term perspective can help to avoid costly mistakes.


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Bear markets like 2020 are extremely rare, occurring less than 1% of the time after markets hit a new all-time high. Building portfolios or making dramatic changes to your overall investment approach around these rare events and extreme conditions can be costly.

What worked during the recent turmoil may not work well over time. Conversely, things that work well in the long run typically do not respond well during extreme short-term conditions. Market forecasts and predictions are notoriously unreliable and with the current levels of uncertainty they are even more suspect.

While true in all market conditions, developing and following a disciplined investment process carefully designed to work well over time and in a variety of conditions is even more important during these times of high uncertainty. While we cannot predict what might happen in the near term, there is ample evidence that things will normalize over several years and the outlook for long-term growth remains positive. Taking a long-term perspective can reduce stress and help to avoid costly mistakes. Like following a compass in a storm, staying true to a disciplined investment approach is usually the best course of action.

From the Behavioral Viewpoint

What is Going On?

  1. Recency and Availability Bias – With daily headlines and dramatic storylines it feels like our wealth and fate hang in the balance. Our minds react to new information and we project potential extreme outcomes and feel compelled to act. To put things in perspective, long-term stock returns average around 10% per year, including all the major historical events, recessions, and bear markets. Tune out the noise!

  2. Fooled by Randomness and Confirmation Bias – We are prone to see information and data in patterns and believe we have profound insights from simple observations. We are particularly subject to information that confirms our existing ideas. In reality, most of what lies ahead is uncertain and random.

  3. Overconfidence Bias – In this environment we can easily confuse luck with skill. We will be drawn to things that happened to work out during this period of time and be tempted to abandon anything that has not fared well recently, regardless of its long-term value. Of course, our emails are full of magic elixirs that can cure all our investing ailments. The urge to act can be powerful, but don’t buy into it.

What can we do?

  1. Reviewing and revising financial plans can be a valuable tool to take stock of your current real needs and make any necessary adjustments in the context of long-term plans and goals.

  2. Following a predetermined investment process can reinforce discipline during turbulent times. The key is sticking to the process, even if it feels uncomfortable, during the turbulent times.

  3. Work with an experienced advisor to gain from their perspective, having been through times like this before, they can provide an even keel and balanced perspective.

Get Behavioral Investing Insights

Behavioral Viewpoints feature new topics each month which are intended to help advisors and investors gain a deeper understanding of how behavior shapes the investing landscape.


The information provided here is for general informational purposes only and should not be considered an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  It should not be assumed that recommendations of AthenaInvest made herein or in the future will be profitable or will equal the past performance records of any AthenaInvest investment strategy or product.  There can be no assurance that future recommendations will achieve comparable results.  The author’s opinions may change, without notice, in reaction to shifting economic, market, business, and other conditions.  AthenaInvest disclaims any responsibility to update such views.  These views may not be relied upon as investment advice or as an indication of trading intent on behalf of any AthenaInvest representative.

You are solely responsible for determining whether any investment, investment strategy, security, or related transaction is appropriate for you based on your personal investment objectives and financial circumstances.  You should consult with a qualified financial adviser, legal or tax professional regarding your specific situation.  Investments involve risk and unless otherwise stated, are not guaranteed. Past performance is not indicative of future performance.