Can the stock market be predicted?

One can predict the Stock Market with the help of two types of analysis:

1. Technical Analysis: Analysis which predicts future stock price movements on the basis of historical patterns.
2. Fundamental Analysis: Analyzing whether the company’s current stock prices reflects its future revenue-generating potential

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Long term = Yes

Short term = No

Let me explain…

In the short term, it is very difficult to predict the stock market.

For example, check out what the top analysts think about these companies:

Source: Bloomberg

These “pros” have price predictions that are HUGELY mismatched.

Check out what they think of Dish Network:

Source: Bloomberg

Basically, what this means is that there are a lot of people that are going to get the future price of these companies WRONG.

But… if you think about it, this disagreement about where these companies will go is what makes the market work.

You must have a seller AND a buyer.

When someone sells a stock, it’s likely that they don’t see any future gains. Meanwhile, the buyer of that same stock obviously believes that the stock will gain in value.

So, in the short term, there will always be sellers and buyers.

Now… for the long term…

If you ask any investor if there will be a decline in the market over the next ten years, I think 99% of investors would agree.

I’m not saying a “crash,” but just a decline in the market. Nearly every investor will agree with this.

So, if we can all agree that there will, at some point, be a decline in the market over the next 10 years, then we can make relatively accurate predictions.

For example, look at this chart:

Source: Incrementum

Historically speaking, we can say that commodities are cheap compared to equities… or equities are expensive compared to commodities.

Either way, we will most likely see a reversal in this trend over the next ten years.

We can invest with relative accuracy based on this ‘prediction.’

(i.e. start to invest in commodities while beginning to minimize exposure to equities)

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If you take a step back and look at the broader market, this is all relatively easy to see.

But, when we look at the market on a short timeline, it’s like our head is in the clouds… we can’t see the bigger picture.