Building Wealth "Sell everything," came the phone call on a January 1981 night... A crash was coming.
The next morning, stocks dropped 2.5%. The market headed in that direction for most of the year, losing 9.7%.
It was masterful crystal-ball gazing by market commentator Joe Granville. He would later say: "The market told me, 'Sell.' And we do what the market tells us to; we never hedge. Only losers hedge."
Granville became a rock star of financial calls. He traversed the country... performing in wild financial conferences with his own theme song, a Moses costume, wire-stunt entrances, and exploding hand grenades. Estimates put his annual income at around $6 million.
It feels good to make the right call.
Maybe you predicted the Super Bowl champ at the start of the season or backed the winning presidential candidate early on. When you can look back and say you knew what was going to happen, it gives you bragging rights. And in the financial business, it can make you money.
But recognize that the human brain wasn't built for modesty...
We tend to trumpet our insights, but brush off all the wrong forecasts we make. You don't deserve much credit for your Super Bowl prediction. One dropped interception by your young defensive back could have changed the entire outcome. And what about the other years when you called it wrong?
Even worse, you can fool yourself into thinking you called something that you didn't... Today, the number of folks who claim to have known that Donald Trump would win the election far exceeds the number who predicted it publicly beforehand.
But you can't fake it when there's money on the line. The market makes your past record honest and immutable. For example, our founder Porter Stansberry publishes a public annual "Report Card" for every Stansberry Research publication.
That type of transparency is rare among folks who are willing to make big calls...
Granville, for one, was all style and no substance. He claimed to have 18 key indicators that told him where the market would go next. But later studies showed they had little to no predictive power.
In fact, his stock predictions typically performed worse than the market. And after his prescient 1981 call, Granville continued to make bearish calls... even as 1982 started a historic bull market.
He resurfaced to predict another bear market in 2002 and again in 2012 – both calls were wrong. He tried to predict earthquakes, too... down to the specific dates that California would be shaken off the continent and into the ocean. None of those came to pass.
Brilliant prognosticators who make bold, massive calls are turned into Wall Street heroes. The trouble is that they rarely have repeat performances...
John Paulson made $5 billion in a year by betting correctly against subprime mortgages... But he's had disastrous years since. He made bad bets on Bank of America (BAC), invested in a Chinese company that turned out to be a fraud, and loaded up on gold at exactly the wrong time.
George Soros won fame for making $1 billion in a day shorting the British pound. (I even know how he did it – I worked for Goldman Sachs in London). However, Soros expected markets to crash when Trump got elected and put on short bets when the results came it. It's estimated that he lost $1 billion before he could get out of his positions.
And last January, an analyst at the Royal Bank of Scotland issued a call to "sell everything."
I wrote to Income Intelligence subscribers in our January issue to ridicule this terrible advice. Not only did we think the market would rise – which it did – but the whole premise of "one big market call" is flawed... Investors should not be making huge portfolio moves based on a single prediction.
To build real, lasting wealth... with a portfolio that pays out steady income month after month in retirement... you must focus on what matters.
What you'll see is that many overlapping developments push the markets today. You'd have to be a fool to think you can guarantee which way the market is headed. So we won't. Some moves simply can't be predicted with much certainty.
That's why it's important to build a diversified portfolio... We don't know when or even if a market earthquake will come, so you'll want a portfolio that keeps you safe no matter what.
In a recent issue of Income Intelligence, I explained why you can't trust your portfolio to a single market prediction.
There's a lot going on in the world, and I examined the broad themes of the market and what they're doing to your portfolio.
Income Intelligence subscribers can read more here. If you're not a subscriber, click here to get started.
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What We're Reading...
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Here's to our health, wealth, and a great retirement,
Dr. David Eifrig and the Retirement Millionaire Daily Research Team
Baltimore, Maryland
May 1, 2017