Recent Bullish Stock Market Predictions -- Too Late, As Usual

Last Updated Jul 21, 2009 11:10 AM EDT

I was watching The Wall Street Journal Report last weekend and felt reassured when guest David Kelly, the chief market strategist for J.P. Morgan Fund said:
If you believe the economy will ever recover, the market has to go a lot higher.
That seemed to reinforce the AP article I read in my local Colorado Springs Gazette where the first sentence read:
Investors are betting that the stock market has restarted its spring rally.
I'll admit that these statements did make me feel a lot better, but that's more attributable to my own weakness than the statements themselves. Media headlines like these are so predictable you can practically set your watch to them. They happen in the aftermath of every great market rally, and merely predict the past.

Why Now?
These headlines came after a week where U.S. markets rallied seven percent, making the total bull since March 9th a 40 percent domestic gain and a whopping 55 percent gain for international stocks. Like the sun rising in the east, investors can count on the market gurus and the press becoming optimistic right after the rally -- when it is way too late to benefit most of us.

Let's face it, on March 9 the stock market was a heck of a lot better value than it is today. That's one of the few things about investing that I can say with 100% certainty. Where the heck were these columns when they actually could have done the investor some good?

Columns back in March were all about the doom and gloom of the stock market. Almost no one was writing about getting into the stock market. It was all I could do to dissuade investors from bailing in droves, and to hopefully convince them not to give in to the pain.

My Advice
Understand the human fallibility of market gurus and the media. As human beings, we all suffer from something called recency bias which is the major driver in our tendency to predict the past. That's perhaps why we forgot how painful it was back in 2002, the first time in this decade that the stock market lost half its value.

Take my advice and ignore the cheerleader headlines. It's better to buy stocks when they are on sale as they were in March. In the post-rally market, it's a good time to rebalance your allocation by selling some of your stock portfolio.

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    Allan S. Roth is the founder of Wealth Logic, an hourly based financial planning and investment advisory firm that advises clients with portfolios ranging from $10,000 to over $50 million. The author of How a Second Grader Beats Wall Street, Roth teaches investments and behavioral finance at the University of Denver and is a frequent speaker. He is required by law to note that his columns are not meant as specific investment advice, since any advice of that sort would need to take into account such things as each reader's willingness and need to take risk. His columns will specifically avoid the foolishness of predicting the next hot stock or what the stock market will do next month.