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Do You Need an Investment Philosophy or a Market Forecast? Thumbnail

Do You Need an Investment Philosophy or a Market Forecast?

Stock market forecasts occupy every corner of the digital universe. Market commentators and the media drone on endlessly about wars, inflation, and supply chain challenges as reasons to support whatever market outlook they proffer. The real question is how will any of these factors impact you and your portfolio? Your investment philosophy holds the answer.

Maybe the economy will tip over into a recession, maybe it won’t; maybe the stock market will decline in the short-run, maybe it won’t – no one knows for sure. What we do know is that investing based on predictions is a losing proposition. Over time, you have a very low probability of being able to successfully predict the economy or markets. The economy can’t be reliably forecast, nor the market consistently timed.

Why You Need an Investment Philosophy

You need an investment philosophy, not a market forecast to be a successful long-term investor. A coherent investment philosophy challenges you to change the way you think about the markets and the economy. An investment philosophy allows you to “zoom out” from the sometimes, scary day-to-day market activity.

In the modern financial world, an investment philosophy built on time-tested principles runs counter to many untested strategies that might be in favor. An investment philosophy that aligns with your long-term goals encourages you to think about money in terms of time…years instead of days.

Your personal map of reality is made up of core beliefs about the economy and markets; in many cases, your inherent beliefs conflict with actual reality – what might be called unreality. The lens through which you see the financial world can be heavily influenced by the financial media; a workable investment philosophy keeps you grounded in reality.

The financial media and prediction pundits often focus on one headline issue and how this particular issue will impact your financial life. Your money life, however, is multi-faceted and dynamic; one single issue doesn’t govern your investing outcomes. 

You might assume future events will happen linearly; that’s not how things usually happen. For example, if you diligently read economic and market forecasts at the beginning of 2022, you wouldn't find any mention of the Russia/Ukraine war. There was no way to predict this event and how this might affect investors today.

How Your Investment Philosophy Helps

Author Nick Murray says, “A genuine philosophy only begins to coalesce at the point where one’s sense of the world, the economy, and the markets stops moving.”

An investment philosophy built around the earnings of companies and timeless principles of finance can be your antidote to market forecasts. A cohesive investment philosophy helps you navigate all types of economic and market conditions. 

The market cycle we are in currently will eventually change and your investment philosophy keeps you grounded as this transition occurs. 

Perhaps the most valuable aspect of any investment philosophy is that it lets you focus on the real driver of long-term returns – your internal behavior. Allowing your investment philosophy time to work is something you can control; the external events in the market are not controllable. Start there. Ready for a real conversation?

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