Can You Predict Future Stock Prices?

Predicting future stock prices is theoretically impossible. The market is essentially efficient, meaning that all publicly available information is almost instantly reflected in the stock price. Anything you read or study about the company can not be used to predict.

There are exceptions of course. Inside information (illegal) would give you an edge over the rest of the public. Thinly traded issues might also take a little longer to price adjust since fewer traders are following the news.

In my view, the biggest exception concerns speculative greed bubbles and fear pits. The group will sometimes begin pricing in irrational expectations. People get a herd instinct and overreact. On the greed side, you commonly see this with technology companies, particularly new age stuff. No company profits or even a prospect of one and stock prices keeps going up. On the fear side, people run screaming away. Look at fossil fuels for example.

Just because there are bubbles and pits does not mean you can use them to trade. If you are in the middle of the storm, how do you know if the storm is going to get worse and when it will end? Is the coal industry in a fear pit and will eventually recover? Or is it dead? How brave are you?

As I’m writing these to help my readers, I would be very appreciative of any input in regards to what I should write next. If you want me to write about a particular topic, please contact me. If you would like to submit a post to my blog, please contact me.

If anything that I mentioned above interests you, please consider downloading my free e-book. The book contains my thoughts on investment management and some information that I think everyone should know. You can also download it below.

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Questions for the comments

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