More than 40 years ago, if you had made a list of the most influential investors in America, Peter Lynch would have been near the top. From 1977 to 1990 he ran Fidelity's Magellan Fund, and during this span compounded capital at a rate of more than 29%.1 He achieved this feat by managing to choose stocks for his fund that turned out to outpace the market as a whole.Lynch had three things going for him. He ran the fund during an era characterized by tremendous growth (including two significant corrections). He knew that analyzing big economic trends would not enable him to predict what the market would do in the future. And he had the good sense to step down from his role as fund manager while he was still on top.Lynch had a famous quote about that second item: "If you spend 13 minutes a year on economics, you've wasted 10 minutes."You might think the opposite of Mr. Lynch’s quote would be true. After all, if you carefully study mountains of data in the leading economic indicators, and note how the market responds each time, when you see those same conditions recur, you can be pretty sure what the market will do. Right?Unfortunately, this premise sounds so true. And that's what lures so many investors into the belief that they will somehow "crack the code" and be successful at timing the market.A stock analyst who writes about the market under the penname Courage & Conviction recently looked at how wrong the big name forecasters have been about the market over the past two years. In 2022 the median forecast for the S&P 500 was for a gain of 7.5%. It dropped by more than 19%. Stung by that (recency bias), for 2023 the forecasters predicted modest to no growth. The index gained more than 24%.Our anonymous analyst writes, "If highly paid Wall Street economists can't really, at least certainly not on a consistent basis, predict the broader stock market, then why do individual investors pretend that they can?”Courage & Conviction adds that most of these experts have PhDs from leading schools, high IQs, and access to the best information available.However, you don't need a crystal ball to succeed in investing. Empirical evidence has shown that over longer time periods, the U.S. stock market has been an exceptional place to compound investors' savings and outpace inflation.Knowing this, the prudent investor will have a long-term view when saving for retirement. This means accepting short-term volatility as a normal aspect of participating in the market. And he or she will work with a trusted advisor who can create a plan for their specific timeline and financial situation, helping to keep them on track when short-term concerns arise.
Sources:1. http://go.pardot.com/e/91522/nomics-youve-wasted-10-minutes/94nh73/2204077070/h/qenBo-XigUGtCUxCj9EhIv-eanT4HCvf8m0oD6xyEEADisclosure:The views expressed herein are exclusively those of Efficient Advisors, LLC (‘EA’), and are not meant as investment advice and are subject to change. All charts and graphs are presented for informational and analytical purposes only. No chart or graph is intended to be used as a guide to investing. EA portfolios may contain specific securities that have been mentioned herein. EA makes no claim as to the suitability of these securities. Past performance is not a guarantee of future performance. Information contained herein is derived from sources we believe to be reliable, however, we do not represent that this information is complete or accurate and it should not be relied upon as such. All opinions expressed herein are subject to change without notice. This information is prepared for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. You should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. You should note that security values may fluctuate and that each security’s price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Investing in any security involves certain systematic risks including, but not limited to, market risk, interest-rate risk, inflation risk, and event risk. These risks are in addition to any unsystematic risks associated with particular investment styles or strategies.