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If They Can Predict the Weather, Why Not the Stock Market? Presented by Mark K. Lund, Financial Advisor in Salt Lake City

September 26, 2022

Humans have always had a strong desire to know the future. Soon after writing was developed in ancient Mesopotamia the Babylonians began using it to catalog thousands of auguries—observances of natural phenomena that they believed could predict major events.1

We still want to know what’s going to happen in the near future. And to meet that demand in the area of meteorology the Farmer’s Almanac will soon publish its predictions for next year’s weather.

For more than 200 years, farmers and lots of other people have looked forward to and relied on the Almanac’s forecast. And with a self-proclaimed accuracy of more than 80%, it seems like that confidence is well founded.2

So how does the Farmers’ Almanac come up with these predictions? They won’t say exactly. But they do admit their method uses some combination of sunspot activity and secret mathematical formulas. Still, if these old-fashioned methods manage to beat the accuracy of weather scientists using the latest technology, that can seem pretty impressive.

Of course, determining the Almanac’s specific accuracy is not easy. You need to compile and analyze quite a bit of historical weather data and then see how it matches up with their historical predictions.

Several years ago, meteorologist Joel Gratz did just that. He tested the Almanac’s predictions for winter weather against actual measurements and found that it was right about half the time. That’s roughly what you’d expect from a series of coin flips. Meanwhile it missed major climatic events, like the severe drought in California, which would have been very useful to know about in advance.3
There are many forecasters who employ similar “black box” methods to try to predict the stock market. But aside from the occasional lucky guess, they cannot consistently foretell either individual stock prices or market movements as a whole. Because investor expectations and new information are priced in almost immediately, it’s nearly impossible to identify guaranteed “bargains” in advance.

Global stock and bond markets reflect the new and unknowable information in real time. Unfortunately, nobody has the “new and unknowable information” Almanac.
But this does not dissuade millions of people from trading on their own or someone else’s prediction, buying and selling in the hope of short-term gains.

Like with the Farmers’ Almanac, many want to believe that somebody really has cracked the code to the future.
The prudent investor, however, will ignore the ancient urge to follow the auguries and continue to save in a disciplined manner, regardless of what analysts are predicting. And he or she will enlist the help of a trusted advisor, not only to create a customized plan that’s designed to help weather the unknowable nature of the future, but also helps them stick with it for the best chance of success.

If you ever have any questions about your investments or retirement plans, please feel free to give me a call at 801-545-0696.

Regards,
Mark Lund
Stonecreek Wealth Advisors, Inc. A Financial Advisor in Utah
11576 S State Street, Bldg. 1002
Draper, UT 84020

Sources:
1. http://go.pardot.com/e/91522/topic-augury/8163bg/1650745660?h=fWs4YHj5dZJVL8QuKYEldFMUEjzuq4MQ2aAFOMe3C0Q
2. http://go.pardot.com/e/91522/rs-almanac-winter-predictions-/8163bk/1650745660?h=fWs4YHj5dZJVL8QuKYEldFMUEjzuq4MQ2aAFOMe3C0Q
3. http://go.pardot.com/e/91522/-we-trust-the-farmer-s-almanac/8163bn/1650745660?h=fWs4YHj5dZJVL8QuKYEldFMUEjzuq4MQ2aAFOMe3C0Q

This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This material was prepared by Efficient Advisors, LLC (“EA’) for Mark Lund, Mark is a Financial Advisor in Utah. He is known as a Wealth Advisor, The 401k Advisor, Investor Coach, Financial Planner, Investment Advisor and author of The Effective Investor. Mark offers investment advisory services through Stonecreek Wealth Advisors, Inc. a fiduciary, independent, fee-only, Registered Investment Advisor firm providing investment management and retirement planning for individuals and 401k consulting for small businesses. Mark’s newsletter is called The Effective Investor Newsletter.  Cities served in Utah are: Salt Lake City, Salt Lake County, Utah County, Park City, Murray City, West Jordan City, Sandy City, Draper City, South Jordan City, Provo City, Orem City, Lehi City, Highland City, Alpine City, American Fork City.  The views expressed herein are exclusively those of Efficient Advisors, LLC (‘EA’), and are not meant as investment advice and are subject to change. All charts and graphs are presented for informational and analytical purposes only. No chart or graph is intended to be used as a guide to investing. EA portfolios may contain specific securities that have been mentioned herein. EA makes no claim as to the suitability of these securities. Past performance is not a guarantee of future performance. Information contained herein is derived from sources we believe to be reliable, however, we do not represent that this information is complete or accurate and it should not be relied upon as such. All opinions expressed herein are subject to change without notice. This information is prepared for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. You should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. You should note that security values may fluctuate and that each security’s price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Investing in any security involves certain systematic risks including, but not limited to, market risk, interest-rate risk, inflation risk, and event risk. These risks are in addition to any unsystematic risks associated with particular investment styles or strategies. 

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