Expert, Shmexpert: What Do They Know?


Financial experts aren’t shy about telling you which way the wind will blow. Confident, at times brash, they broadcast insights into the future. Deliver crystal ball readings. And talk as if predictions and reality are one and the same. As if they KNOW what will happen tomorrow.

How kind. How thoughtful. How generous. To play nice and share such valuable information. How, um, uh … wait a second here! Unless comic book super heroes have transmogrified into living, breathing beings plying their usual trademark scaling of tall buildings, saving our planet from evil dictators and, notable for our immediate purposes, reversing the globe’s spin, peering into the future is little more than a step right up and place your betscrapshoot.

02fin3So when you read about, or listen to, a financial advisor, hedge fund manager, stock analyst, journalist, economist, media savvy CEO or any other self-appointed expert serve up their predictions hot off the press, please, for the good of your portfolio health, take it with an ever so large grain of salt.

Because predictions are just that: guesses, extrapolations, prophesies. Whether spoken by a rich guy or corporate big shot, whether published in a reputable publication such as the Wall Street Journal, Bloomberg, or Barrons, or a fly by night investor newsletter baldly touting the latest and greatest crypto-currency, understand that the only certainty about investing is that the future cannot be foretold.


Certainly, There Is No Certainty

In my humble opinion, Barrons is one of the few excellent investor friendly daily publications. And while I do glean helpful investment related tidbits from their articles, I nevertheless read them with a critical eye. Because if I didn’t, if I swallowed whole what someone else was serving up, well then, shame on me for blindly following, for responding no different than sheep (or llama!) waiting to be fleeced. Baaaa, Baaaa.

Here’s the reality: there is no certainty when it comes to predicting movements in the price of securities or growth of economies. So when someone, anyone, offers certainty in their analysis of the future, know that the offer falls under the category of HOOEY.

Now, this doesn’t necessarily mean that there is active intent to deceive on the part of the person providing information. Rather, there are a few other explanations.

First up is arrogance, an unfortunate trait too common among those in positions of power. Of course, arrogance is delusional in the sense that, however large your bank balance or expansive your influence, this doesn’t make you privy to writing history before events unfold.

Second, we the people, habitually grasping for certainty in all aspects of life, tend to respond positively to strongly worded opinions. Attracted to the ‘with us or against us, take it or leave it, black and white opinions’, we don’t care much for wafflers.

Because wafflers are colored gray, they’re messy, they confuse issues by offering more than one explanation or possible outcome, and never seem to just get to the point and tell us what we should do.

The sad thing is, this sort of thinking, this wanting to have a clear cut answer, is harmful for many reasons. Not the least of which is because, surprise, surprise, those who give off the appearance of certainty are no more likely to KNOW what tomorrow will bring than the perceived wafflers.

Personally, my bias is toward wafflers. Because they have considered more than one side of the issue (there are always at least three sides, you see) and understand that REALITY IS MESSY AND IT’S ALWAYS CHANGING.

As an investor, you don’t want to be spoon fed information, you don’t want to be told what to do. Rather, you want to (uh oh, seems I’m telling you what to do … read on, you’ll see I’m one of the good guys) think, ask questions, empower yourself by accepting the information, rolling it around, chewing on it, digesting it, spitting it up, letting it sit, looking at all angles, comparing it to contrary information sources, then using your best judgment to render a decision about its worth.


Case In Point

Back to Barrons. I recently landed on an article written by Byron Wien, vice-chairman of Blackstone Advisory Partners, a subsidiary of The Blackstone Group, an investment firm managing more than $300 Billion.

The subheading for the article is, ‘Wall Street’s Best Minds’. And the article itself is titled, ‘Smart Money Analyzes The Market.’

Hmmm, best minds you say? Okay, fine, this is marketing hype but still, given his background, I took a leap of faith here and accepted that Byron is a guy who knows a fair bit about the workings of financial markets. That said, regardless of Byron’s position or net worth, I read his words closely.

Wein. “Howard Marks of Oaktree, one of the most insightful thinkers in the money management business, has written a 22-page paper on the risks facing investors, and he concludes that this is a time for caution because of the condition of asymmetry: the potential rewards are not sufficient to justify the uncertainties and stretched valuation of equities.”

BuddhaMoney. Okay, Howard is a smart guy. Knows his stuff. But should I FOLLOW his conclusions? Does it matter that his analysis runs 2, 12 or 22 pages? Should I be cautious about investing at this time? Maybe. But even if I agree with Howard, I’m well aware that Howard’s crystal ball reading is just as accurate as any other. Translation: his ball is on the fritz.

Wein. “One investor recalled the “Rule of 20” from what now seems like ancient times: the combination of inflation and price earnings ratios should be no more than 20. On that basis, the market is a little more than fully priced but not egregiously overvalued.”

BuddhaMoney. Really? The Rule of 20? It’s ridiculous how many myths are out there trying to explain future stock market movements. And this Rule of 20, like other silly and simple ‘rules’ is meant to make clear sense of current financial conditions. And it fails. Like every other rule. Because financials conditions are too complex, there are too many moving parts that don’t allow for simplistic answers packaged in a neatly titled Rule.

Wein. “Looking at historical price earnings ratios, the market certainly appears to be fully valued, even assuming earnings continue to come in better than expected.”

BuddhaMoney. Ya well, we can and should learn from history. But history is not a dead on predictor of what will happen tomorrow. And note here that Wein himself is hedging …’the market certainly appears to be fully valued’. How is this statement helpful? Is it fully valued or not? The thing is, this phrase is purposeful since Wein knows what he doesn’t know … and he doesn’t know with any certainty whether or not the market is in fact fully valued.

Wein. “… other potential impediments to equity appreciation are not currently negative: investors are optimistic but not euphoric, inventories are not excessive, unemployment is declining rather than rising, leading indicators are making new highs and inflation is modest. Accordingly, we could be several years away from the next recession or bear market.”

BuddhaMoney. What Wein is saying is that, um, who knows! Who knows where the market is headed!


Passive Index Funds Don’t Require Tea Leaves

So what’s the take away? I’m not here to disparage Wein. The article’s title says that it’s intended as an analysis. And Wein delivers with a wealth of facts and insights, risks and other expert opinions leading to a conclusion that some of the best minds on Wall Street believe the market will go up, others believe it will go down.

And really, that’s the best that may be offered. Because no one knows with any certainty what will happen tomorrow, all we may do is inform ourselves and use our best judgment to make decisions.

That said, wise investors know enough to pay little attention to media generated noise, to not get caught up in the guessing game of when is the next market meltdown or economic recession.  Because when you have a long term game plan, short term hiccups don’t matter much.

Thus the relatively recent volcanic flow of money into passive index funds, where the only bet you’re making is that, over time, markets will go up. Is it a lock that, with an adequate investing horizon, markets rise? Nope. But a passive index fund is a safer bet than any individual security. And thats about the best we may do in the investing game.