"The only true wisdom is in knowing that you know nothing."




) -- When people hear that I write about the financial markets, they often ask me: "So, what are stocks going to do this year?"

My response inevitably disappoints them: "I don't have a clue."

It's not what people want to hear, but it's the truth, and some wise souls can appreciate that. They know that, contrary to popular belief, sensible investing for the vast majority of people is not about getting a hot tip from some genius about whether the market will be heading up or down in the near future. It's not about reading some tea leaves and placing some well-timed bets on a winner.

It never ceases to amaze me, though, how many people in positions of influence and authority will so casually tell people otherwise. Open a popular financial rag or turn on a leading financial news network, and people from once-prestigious institutions like

J.P. Morgan Chase

(JPM) - Get JPMorgan Chase & Co. (JPM) Report


Bank of America

(BAC) - Get Bank of America Corp Report



(C) - Get Citigroup Inc. Report

are lining up to tell people what is going to happen in the stock market this year, next week or even tomorrow.

It is all noise. Having worked in New York's financial media for a decade, seeing prognosticator after prognosticator spew their predictions out over the airwaves, I'm here to tell you that none of these people have any idea what is going to happen. It's important for people who, like me, are investors and consumers of mass media to understand that.

Sure, we can make guesses as to what will happen, and some guesses are better educated than others. It's fun to make such guesses and debate them with friends and so forth, but at the end of the day, they're still only guesses, and if you're basing your investment decisions on guesses, you're playing some long odds. Why not just go to Vegas and have some real fun in the process of losing your shirt?

Could the debt crisis in Europe cause shocks to the global financial system that lead to another financial panic here in the U.S.? Well, uh, yeah. It could, but Europe might find a workable solution to its problems while the U.S. serves as a global safe haven for investors, powering major stock indices to new heights for years into the future.

What about our own domestic fiscal problems? Could the political hissy fit that is currently being thrown in Washington, D.C. by the very snake oil salesman that caused the explosion of our national debt in the first place lead to a market rout?

Sure, but when this electoral season finally ends, our elected representatives might actually reach an agreement on a sensible combination of tax increases and spending cuts while the economic recovery gains momentum, putting the country on a more sustainable fiscal path. That would be great for our long-term economic prospects as well as the stock market.

Then again, there could be a catastrophic natural disaster or terrorist attack or God-knows-what-kind-of-event that completely alters our perception of reality and renders the entire national conversation we are having right now irrelevant. Who knows? I don't, and neither do you or anyone else.

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So, where does that leave us as investors trying to make intelligent decisions about our money and our financial future?

The first step is to be humble and aware that we don't have all the answers and we don't know what the future holds. We can identify the risks facing us -- inflation, recession, etc. -- and do our best to account for them as we diversify our portfolio.

When it comes to the stock market, we can look at its long-term historical performance and assess our own time horizon when it comes to our financial needs to decide whether it makes sense to take on some equity risk.

If it does, then there are people who are skilled at analyzing individual companies, crunching the numbers in their financial statements and coming up with reasonable estimates of their intrinsic value.

These are the skills that can lead an investor to find companies trading in the public markets at a substantial discount to their real value. If you can assemble a portfolio of stocks that fit that criteria and hold onto it for years -- through the short-term gyrations of the market -- then you have successfully put the odds of success in your favor.

That's the path to achieving above-average investment returns over time, and as those returns compound over the years, the patient investor will eventually find themselves in possession of a lot more money than they started with.

Will it work out well for you over the next year? Again, I have no idea, but good luck.

Follow me on Twitter @NatWorden

At the time of publication the author had a position in JPM and C but in none of the other stocks mentioned in this article.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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The Oil Drum

The Baseline Scenario

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Zero Hedge

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