by Avi Gilburt
While many viewed unemployment, or the Covid virus, or the slowed GDP, or a myriad of other factors as reasons to believe the market is “dangerous,” I propose that these four-letter words are more dangerous to your investment account than anything else:
NEWS, BIAS, and HOPE
You see, many will turn to the news to determine which direction the market will move. Yet, much research has been done over the last several decades which suggests that news does not have the impact many believe.
In a 1988 study conducted by Cutler, Poterba, and Summers entitled “What Moves Stock Prices,” they reviewed stock market price action after major economic or other type of news (including major political events) in order to develop a model through which one would be able to predict market moves RETROSPECTIVELY. Yes, you heard me right. They were not even at the stage yet of developing a prospective prediction model.