During a recent media interview with Ho Chi Minh TV, I was asked a question that every investor wants to know: When will the financial crisis end? But rather than attempting to predict the future, I had a simple yet profound response: “I don’t know.”
Why is prediction a loser’s game in the financial markets?
By making predictions, you will inevitably make decisions and take action based on those predictions. And what happens when those predictions turn out to be wrong? Instead of admitting the mistake and cutting losses, many investors double down on their positions, hoping to hold on to their predictions.
So, what should investors do in financial crisis instead?
The key is to understand which markets tend to rise during a financial crisis and which markets tend to fall. By going long on markets that are moving in an uptrend and going short on those that are moving in a downtrend, investors can take advantage of market movements without trying to predict the future.
I also mentioned that not all markets move in the same way during a crisis. For example, in a high-interest-rate environment, gold tends to rise while stocks tend to fall. By understanding these trends, investors can make informed decisions and avoid the pitfalls of prediction.
Of course, success in the financial markets is counter-intuitive. It is not always easy to stick to simple rules and avoid the temptation to make predictions or break the rules. But as I have learned from 15 years of teaching investors, those who are willing to listen and apply the rules are the ones who ultimately succeed.
So, the next time someone asks when the financial crisis will end, remember my advice: it is not about prediction, it is about the reaction. By understanding market trends and sticking to simple rules, investors can survive even the toughest of times.
