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Market Forecasting – Why It Is Dangerous To Rely On Ratios

One of our key goals at Investing Haven is to educate investors. There is so much financial content available on the internet, and, most likely, in everyone’s mailbox, that readers ONLY find conflicting messages. That makes market forecasting extremely challenging.

Moreover, a large part of investors are selective in that they stick to analysts who bring the message they LIKE to hear. One such example is the gloom and doom community which always finds a way to justify that the next stock market crash is just around the corner.

Take as an example the bonds to stocks ratio. Look at what that ratio did in 2016: it showed a “break out” similar to 2007. That pattern would suggest a stock market crash was brewing in 2016. Nothing was further from the truth, as markets only went higher since then.

Market forecasting requires research and analysis

The key take-away for investors is that they should be very careful when reading financial content. Moreover, and even more importantly, it can be very damaging to one’s portfolio when relying on the wrong indicator. Looking back at the chart in this article, the bonds to stocks to ratio proved to be ‘wrong’ in predicting what markets would do.

Market forecasting is an art, in and on its own. It requires a lot of research and analysis in order to come to a methodology that truly works.

Investors should avoid relying on wrong indicators. News is definitely not a reliable source of information, and following stubborn analysts neither.

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  • Hi Taki, I found your site super helpful while I share/love your chart strategy. I totally agree with you that charts are an essential tools in investing short/long term alike.

    I bookmark you on my best investment sites (I only have 4) so I’ll read your research in weekly basis.

    I would like to note one thing:

    – After the FED rate hike, the gold drop but recap immediately leaving a “V” shape rebound. I value “V” shapes in my short trading because they if breakout, usually the index or stock go up strongly or they could develop in a double bottom. In the next few weeks will be interesting to see the development.

    Would be great to read your research on Uranium mining sector/stock being the most undervalue sector out there at the moment.

    Keep up the good work.