Will It Be Sunny or Stormy?

There are two sides (at least!) to every argument, and that's very much in evidence to anyone who regularly reads the financial press. Recently, two technical titans boldly stated their positions on the market's future direction — and they're in direct opposition to one another (not that they know or care). Robert Prechter is a very smart fellow who has had his share of brilliant insights. When I was day trading in the futures market in the 1980s... I know, I know. Some of you are shocked that I would undertake, with serious money I might add, such a quixotic quest. Yes, well, we all have a few skeletons in our closets. I learned my lesson, repented of my foolish optimism and risk-taking, and turned my back on the dark side... I followed Prechter's pronouncements with real interest. He made several amazing predictions, and was never bashful about making them forcefully. His bottom line now:

"Expect the market to develop into a crash, with panic increasing into Halloweeen and then culminating within hours. From that low, the market should stage a dramatic three-day bounce for wave four and then resume declining to lower lows for wave five. This decline should leave 10,000 behind for good." [Emphasis added]

Fortunately, he's been wrong so far. Taking a decidedly different view is Don Hays. Well-respected on Wall Street, he's been managing money for more than 30 years. His forecasts have been featured in the Wall Street Journal, Barron's and similar publications. Here's his current take:

"The odds are more in our favor every day. ... We recommend that long term growth investors have 90% of their money in the market, with the rest ready to buy very soon. History is on our side, and the odds are strongly in our favor. We believe the market will double by 2008."

So, will the market fall by more than half over the next few years, or will it double by 2008? Nobody knows, including these two fellows. Since they're just guessing, don't let them sidetrack your investing plans.

Look at forecasts this way. Say you've long been planning a grand family reunion picnic. As the big day approaches, you see a weatherman forecasting thunderstorms. Changing the channel, another one is forecasting beautiful weather. What's likely to happen? Well, one of the "experts" could be completely wrong. Or they both could be partially right — rain in the morning and sunny in the afternoon. Of course, it could turn out to be more rainy than sunny. Or the opposite. And on and on. There's a huge number of possibilities in terms of timing, the sequence, and the severity of the weather patterns. Knowing you can't take all of this into account, what would you do? Since you always knew rain was a possibility, you would likely carry on as planned. Why should you make a major change in your plans just because a weatherman somewhere (with an all-so-fallible track record) says it's going to rain?

When it comes to investing in stocks, we already know there are going to be occasional storms. We call them bear markets. And we plan our time frames and stock risk exposure accordingly. Over the past 80 years, through the Great Depression, wars, inflationary scares, and more recessions, the stock market has gone up in seven of every ten years. Long-term, bulls are stronger than bears.

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