Norman: Predicting Market Crashes Is Folly

Editor's Note: This article was originally published at 1 p.m. EDT on Real Money on July 28. Sign up for a free trial of Real Money.

Predicting market crashes is folly, yet these pronouncements still grab the headlines. What is the point? Over time, the market trades higher. If one of the goals of predicting market crashes were to alert people to great buying opportunities ahead, that would be one thing. But these predictions are meant to frighten investors and support the cynical "cottage industries" of people who live by promoting fear.

So what if you called the market decline of 2008-2009? Did you call the subsequent rebound to new highs? Not one of the pundits did. Did you alert people to massive, perhaps once-in-a-lifetime buying opportunities in great stock names such as Apple (AAPL), Microsoft (MSFT), Amazon (AMZN) or Google (GOOGL)? Nope.

I've said this before, and I'll say it again: The stock market is a growth function like any other growth function. Take a penny and double it every day. At the end of 30 days, you have over $5 million. Not bad. Now graph that. That's how the stock market works.

The stock market is a reflection of the growth of earnings and dividends of the companies listed. Even more, it is a reflection of the growth of the economy. While earnings, dividends and the economy don't double every day, over the course of many years they do grow. Sometimes they grow quickly, sometimes slowly and sometimes not at all, but in general over time they grow. The gains of today add to the gains of yesterday and of the days, weeks, months and years before, and that's why stocks go up. It's math.

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