Stock Market Prediction

Can we predict the stock market?  Predict is probably a strong word.  It implies foreknowledge. An ability to tell the future that is unable to be changed.  Most people when they mention a prediction for the stock market mean an educated guess based on theory, facts, figures and data that is more probable to occur than other guesses.   Just doesn't have the same ring to it does it?

When you read a prospectus on a mutual fund, it states that past performance is not indicative of future performance.  Legally they are required to put this information.  It means that just because the fund went up last year doesn't mean it will go up this year.  In fact historical analysis of hot funds (the top ones for the past 5 years) usually leads you to the conclusion that they will underperform over the next 5 years.  So what changes?  Is this part of the reason we can't give an accurate stock market prediction?

It is too wide spread an occurrence for it to be personel changes.  I believe it is based on business cycles.  The underlying assumptions of a fund won't change much over time.  During some parts of the business cycle, they are in sync with the markets and perform above average.  When the cycle shifts into another part of the cycle, they underperform as they are now out of sync with the markets.

Business cycles are discussed a lot by Austrian economists.  They have many theories about the boom/bust cycle and how government can impact it negatively.  We are currently in a bust part of the cycle as we flush out the excesses of the past 2 decades.  It won't be pretty or easy. 

If you invest in the stock market you need to read  Get out of the Stock Market Now