Peter Lynch: Why You Should Always Ignore Economic Predictions When Investing

You don't have to go far to find dire economic predictions. Just turn on your TV or open YouTube, and you will see predictions about what will cause the next financial crisis, economic collapse, or great depression. Whether it's caused by rising interest rates, inflation, or national debt, someone is always claiming the next crash is just around the corner.

That is why, in my job as a professional investor, and in my own personal investing portfolio, I like to remember what Peter Lynch has to say about macroeconomic predictions: "There's always going to be something to worry about." Make sure to like this video and subscribe to the channel if you haven't already. It's my goal to help you better understand investing and make you a better investor.

Now, let's take a listen to what Peter Lynch had to say in 1997, as it is even more relevant now than nearly 25 years ago. "There's always something to worry about. This is the difference; this is what happens in the stock market. Because see, everybody's got the brainpower to do well in stock market questions where they have the stomach for it—that's the key organ in the body. There's always something to worry about."

I grew up; I went to school with a kid in the 50s. In the decade of the 50s, there was this big theory that the depression was caused by the stock market crash. Totally wrong! Less than one percent of Americans owned stocks in '29. We had this big-time recession—in fact, it was a depression. That's what it wasn't caused by the stock market; the economy went down, the federal reserve raised interest rates, and we had a big-time depression. In fact, we had several depressions like that from 1850 on; this is only one of about eight depressions since 1850.

People thought the only reason we got the depression was World War II, and they said once we get back, next time every recession we're gonna have a depression and it's gonna be a great depression. I never understood that adjective in front of 'depression.' You might have a crummy depression or a bad depression, but it was a great depression. I never quite understood that one.

So, people weren't buying stocks in the 50s because they thought another great depression was going to happen. In addition, people were very scared about nuclear warheads and nuclear war. In the 50s, people were building fallout shelters, stocking canned goods. There's something about going to Vermont, building a fallout shelter, putting canned goods in it, that you don't buy Minnesota Mining, or you don't buy Eastern Ghouta. The syllogism just doesn't work out that you're buying lots of water, buying a shotgun, buying frozen food that will stay in the freezer with your own generator, and you're looking at growth stocks. It doesn't seem to work out that way.

I remember in the 50s, I mean, I remember literally in classes; I was in elementary school in the 50s, and they'd come in to have one of these air raid drills. Somebody would yell a hat, and they'd blow a whistle, and you get under your desk. Even then, I said, "I don't think this is going to do a lot of good," you know? Yeah, but people were worried about a depression and nuclear war in the 50s.

Then, I mean, the warheads couldn't do much damage back in the 50s. Now, one of these Stan countries, you know, these Kakistan and Gazakistan, all these Stan guys that have spun off these Freeman billing spin-offs from them. They didn't lead; it was a code deal with somebody else, like Goldman Sachs. They're on the left side. Every one of these little countries has enough warheads to blow the world up 88 times, right? Who's built a fallout shelter? You know, we stopped worrying about it.

There's always something to worry about. In the 50s, it was depression and nuclear war. The 50s was the best decade this century for the stock market; except for the 80s, it was only slightly better. These are only slightly better people; they expect a lot—we don't. Okay, it wasn't a great decade; they just didn't expect much. We made it through, and the stock market was terrific.

Do you remember when oil went from four to forty? Remember that period? Oil went from four to forty, and the experts said it was gonna go to a hundred, and all the countries of the world were gonna go bankrupt. Then the big banks go bankrupt, and we’re gonna have a great depression, and the stock markets go down. You're gonna wind up selling pencils and apples.

You know, the oil went from four to forty, and the experts said it was gonna go 100. Within two years, oil was at 14. The experts—now much higher paid—at this point are saying it's going to go to four, and we have a depression, and people believe it again.

I remember when the money supply was going too fast; they said we’re gonna have a depression. That was going too slow; we have a depression. Remember the LDC debt? Remember the LDC debt? All the banks—our banks are very smart; they lent all their net worth to Zimbabwe and Botswana and Bova Salon and all these countries, Chile—a lot of countries you can't pronounce. This is Chase Manhattan and Chemical and Manufacturers Hanover. These countries weren't doing so well; then they were called undeveloped countries or less developed countries.

Now you have to call them emerging countries. It’s not politically correct to call anybody an undeveloped country. It’s like I just found out the other day that the term for somebody that's overweight is "laterally challenged." You have to say "laterally challenged." Yeah, but these are LDC debt—they're all going to go bankrupt, and we're gonna have a depression.

Then the Middle East was going on; remember that one? The Middle East around the world, they weren't going to buy our bonds, and the market crashing would have depression. Then Japan was going to work, man! That one—Japan was going to have all the assets, and they weren't going to buy our bonds, and we were gonna have depression. Within three years, the Nikkei dial had gone from 40,000 to 16,000; the banking system was in trouble, and people said Japan was going to collapse, and we were gonna have a depression.

I mean, people on their prayer list the other day, they eliminated triple children, Mother Teresa— they're praying for Japan. I mean, you know, it's a country with a 15% savings rate! You know, at some bizarre commercial real estate, global warming—you know, and I think it's the older you get, the more nervous you get about these things.

I think it's very valuable. I think while younger people are better investors, it's because they're not worried. They haven't heard about all these crises, and they’re with children. I think if you don't have any kids, you've got to rent some kids for the weekend. You know, get a seven-year-old and ask if he knows about the money supply—how fast it's grown. Ask him if he knows about the shape of the yield curve, is the wrong shape of the yield curve, or that we're 48.3 months into the economic recovery and the average recovery is less than 52.3.

You know, ask an eight-year-old if they know about that. Eight-year-olds have a very high expectation about the next 20 years. That's what you need to do. The more you get away from eight rolls, the more you away from living rolls, the more you start reading these crazy things you read over the weekend.

In fact, from 1955 to 1985, the stock market went up a grand total of a thousand points, but it was down 800 on Mondays, so it was down—it was there for up 1800 on non-Mondays. It wasn't an accident. The stock market went down October the 19th, '87—it was a Monday. People over the weekend become economists and portfolio strategists.

In fact, I knew very well the market was going down in October of 1987. Dave Ellison remembers that. My first vacation is going to take in six years, and we decided to go to Ireland. We stayed in these little cottages and played golf. I left on Thursday after the close of trade; the market was down 55 points, which wasn't a good start, but it was down 55 points.

We got over there, and because of the time zone, we were able to do what we wanted to do, and get down to Cork, and I called in, and the market was down about 118. I said to Carolyn, "If the market was down on Monday, we'd better go back." But we're already here, so "Myles, we'll stay for the weekend." As you know, the market went down 508 on Monday, so I flew home, because if I funded golf, I think from 13 billion to 9 billion in two working days.

The trend here is not positive. Like I could do something about it, you know? You know, yeah, but it's time. They called, and they wanted to say, "Well, what's Lynch doing right now?" Well, he's on the 10th hole; he's even par on the front nine, but you know he’s in the trap right now. This could be a double bogey; this could be a quadruple bogey right here—it could blow the entire front nine right here. You know, this is not what they want to hear, you know?

So, I have no idea when the market's gonna go down and no idea when it's gonna go up. I'm totally shocked the market was 4,000 two and a half years ago. A little while ago, it’s 8,000. I had no idea about this; it's very surprising to me. But I'll guarantee you the market will be a lot higher in 15 years; it'll be a lot higher than 25 years. What it's gonna do in the next one or two years, I don't have any idea.

If somebody in this room knows about it, they're not telling anybody, or they're not in this room; they're down in Palm Springs somewhere. You know, they've made a billion dollars or they know anything about interest rates. There's an interest rate—if you can be right five times in a row and ten grand, you can have two billion. It’s not that many people with two billion; there’s a lot of people predicting interest rates.

Did you ever think about that one? Yeah, just five times right around ten grand, two billion. If you write seven times in a row, you can have the GNP of the United Kingdom. You know, it’s a big number. So, I don't worry about that. I know we've had 96 years—a century—and the market's fallen 53 times. We've had 53 declines of 10% or more.

So, 53 declines in 96 years—once every two years, we have a 10% decline. Of the 53 declines, 15 (1 5) have been 25% or more. So, 15 in 96 years—but once every six years, the market falls 25% or more. That's what we call a bear market. You know that, and it's going to happen. I don't care when it's gonna happen. I would love to know; it obviously would be very useful to know when it's gonna happen.

It doesn't make a difference to me; the market drives me a lot higher eight years from now, a lot higher 16 years from now, a lot higher 30 years from now. That's what I deal with. I'll be glad to answer your questions. It's great—I enjoyed it and want to start the questions.

They don’t get the question; I'll read the calendar of offerings for free billings for the next month. Do you like international stocks? The question is, I always found I was better overseas than I was domestic, because there's just less coverage. There are fewer people following these companies, so I think my big theory—and I think it's valid—if you look at 10 companies, you'll find one that's mispriced. You look at 20, you'll find two; you look at 100, you'll find 10.

The person that turns over the most rocks wins the game. Overseas, the numbers are much better; it's just not that much coverage. So, I think international stocks are definitely worth looking at.