This is NOT the next Apple

December 14, 2015

You just got an email from a friend about the perfect investment. In fact, it could be the next Apple! The email says that this is a stock that every investor should have in his or her portfolio. This little-known stock is just waiting for you to invest! The email says that you need to act fast before the opportunity goes away. What should you do to take advantage of this once in a lifetime opportunity? I have a suggestion. Delete the email.

 

We all want to be on the ground floor of the next big boom or get out of the market before the next crash, and there are plenty of ‘experts’ willing to sell newsletters with ‘little known’ strategies to ‘beat the market’. These newsletters are great at preying upon our basic emotions, fear and greed. “Act now before this investment skyrockets,” the email says (greed). “The market will crash but if you follow my system you can save your retirement,” the email says (fear). The future is unknown and can be very scary, and that is why it is so appealing to hear someone who will tell us exactly what will happen and exactly what we can do about it. But here is the problem. They don’t really know.

 

Most of the advice that we come across in the media is downright terrible. No one knows what the future holds, not even if the expert ‘predicted the last crash’. Consider the case of New York University professor Nouriel Roubini. In 2006 Roubini predicted that the market was about to crash and when the market fell apart in 2007 he was hailed as a prophet and gained international attention. But as far as "prophets" go, he has been incredibly wrong since his 2006 prediction. He said the markets would continue to collapse in 2008 – wrong, and that the market would fall below 600 by the end of 2009 – wrong. In fact, the S&P 500 closed the year at 1,115 for a gain of 23.5 percent. It is difficult to determine if even the best experts are smart or just occasionally right. After all, even a broken clock is right twice a day.

 

If you are a bit unsettled about now, I understand. Again, the world can be a scary place and it would be great if someone would just tell us exactly what is going to happen. Here is a true confession. I don’t know what is going to happen either. Sure, I can study the markets and make educated guesses, but there will always be surprises even for the most educated investor. So what do we do in the face of this type of uncertainty? The first step is to admit that we don’t know the future, and then to start to plan with the assumption that the unexpected will occur.

 

When we sit down to discuss investments with our clients we always start with the question, “What is the goal?” Is the goal really to find the next Apple or is the goal to retire comfortably. By keeping our eyes on the goal we can craft a portfolio that is designed to be the best at accomplishing that goal. That is why we believe that personal finance is more personal than finance. For example, we don’t know when the next stock market crash will happen, but we can choose how much to invest in the stock market knowing that a crash could occur depending on your individual goals. Similarly, we don’t know exactly what the future holds, but we can selectively choose investments that help to offset a negative stock market event.

 

Having a methodical, disciplined approach to investing doesn’t sound as exciting as the next Apple, but here is the truth: the odds that the email in your inbox really found the next Apple, are about the same as the odds of winning the lottery. By focusing on what really matters – your goals - you can choose wisely and accomplish what you want in life. In the end, isn’t that a better answer anyway?

 

Keohane, Joe. "That guy who called the big one?  Don't listen to him." Boston.com. January 9, 2011. http://www.boston.com/bostonglobe/ideas/articles/2011/01/09/that_guy_who_called_the_big_one_dont_listen_to_him/

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