Let’s talk about the value of prediction in this Weekly Update with Brett Witkowski. Can a crystal ball make you rich? Is it important to forecast the future in investing?

A fascinating study last year titled “When a Crystal Ball Isn’t Enough to Make You Rich” explored these questions in depth. The researchers took 118 young adults trained in finance and gave them headlines from the Wall Street Journal, dated a day in the future. Armed with just $50 and the goal of doubling it to $100, the participants used the news to make investment decisions.

The study was inspired by Nassim Nicholas Taleb’s tweet (X), in which he said: “I conjecture that if you gave an investor the next day’s news 24 h in advance he would go bust in less than a year.”

What did this study teach us? The average return in the experiment was just 3.2%. The participants were correct in predicting the direction of stocks and bonds only 51.5% of the time—essentially a coin flip.

Why are we talking about this? Looking at the current news cycle, it’s easy to see how headlines—from geopolitical events to economic reports—can influence the markets and our daily lives. However, reacting impulsively to the news can often do more harm than good.

What does this mean for you as an investor? A 2024 experiment underscores the point that predicting the future in investing is, at best, a guessing game. Even if we knew exactly what would happen tomorrow, our odds of investing successfully are still nearly the same as flipping a coin. This insight is particularly important with today’s political landscape and the upcoming election. News media thrives on predictions because they drive viewership, but remember: you are the consumer of the news, not the other way around.

During times like these, it’s crucial not to let news headlines dictate your investment decisions without deeper reflection. Don’t act on impulse—take a step back and consider all the factors before making any changes to your portfolio.