Financial Planning & Wealth Management

Predicting the Next Big Crash

You may have watched the movie The Big Short starring Steve Carell as Michael Burry, who came into prominence for accurately predicting the housing bubble back in 2008.

 

He is perhaps most famous for getting this prediction correct. Did you watch the movie?

 

Well, Burry made subsequent predictions as well, and luckily, we can look back to see how many he got right.

I see 8 calls and they all go along the lines of 

Wrong 

Wrong 

Wrong 

Wrong 

Wrong 

Wrong 

Wrong 

Wrong 

 

Well, that’s not a very good track record. Perhaps best ignore his next tweet about stock market doom.

 

Robert Kiyosaki is another individual who likes to tweet stock market predictions. He is famous for writing one of the most-read personal finance books of all time — Rich Dad, Poor Dad. Perhaps you’ve read it? 

 

It’s a good thing to get people interested in personal finance because no one teaches you this stuff. 

 

So, Kiyosaki naturally has a huge following on Twitter (X?) Here is one of his tweets from December last year (2023)

That’s scary stuff. I don’t want to play Russian Roulette with my financial life. Best move to cash? 

Of course, he is talking about the US market. Let’s see how that turned out  –

Up almost 17% year to date? Looks like he got that one wrong. But hey, he is rich. He wrote a best-selling book. He has a huge following.

 

Here’s another one from May 2022. He got that one wrong too

The Internet makes it easy to keep track of charlatans and their terrible forecasting records. It turns out, this guy has been predicting the end of the financial system as we know it for years. I found a blog post that documented his history of stock market crash predictions – 

There are 8 predictions in all. Let’s look at that track record –

 

Wrong

 

Wrong

 

Wrong

 

(I need to write “Wrong” another 5 times, but I won’t. You get the point.)

 

Perhaps he should rename his book to Rich Author, Poor Readers.

 

I don’t know what someone like Kiyosaki gets from predicting the worst crash the world has ever seen every six months. I don’t know why Burry keeps predicting crashes and then tweeting about them. But I do know anyone that followed their advice is poorer because of it.

 

Markets sometimes become overvalued and do crash. Corrections, bear markets, recessions, and black swan events happen from time to time. This kind of thing happens once every 10-20 years.

 

But genuine financial advice doesn’t rely on fear. Instead, it simplifies complex topics, providing clear explanations. Real financial advice doesn’t predict; it offers perspective, historical context, outlining both pros and cons, and weighing the costs and benefits.

 

The key takeaway is to make decisions based on sound financial principles, not sensational headlines. Look at the primary data in historical context. While it’s easy to be swayed by dramatic predictions, a steady, low cost and data driven approach to investing will always serve you better in the long run. Investing isn’t that risky if you can take your emotions out of it.

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About

 MattFin is a blog that focuses on wealth management, investments, financial markets and investor psychology. I build financial plans and portfolios for families and individuals

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