In April 2014, the results of several surveys in the United States indicated that the majority of economists and other experts expected an increase in Treasury yields in the coming six months. One survey was so clear (100% of respondents predicted this) that several articles were written on the topic.
Fast forward six months:
Haha, what a nice miss!
Becoming a successful investor or speculator involves two steps. In the first, you need to learn, read a lot, listen to experts, and then put together a system that fits your personality, risk tolerance, laziness, etc. This phase concludes when you’ve built a mental framework that always tells you what to do. After that, forget all news sources and experts, and read them at most for entertainment. If an expert’s opinion influences your daily decisions, it’s a sign of weakness in your own system, and you will pay the price. Don’t worry about opinions; focus on fixing and improving your own thinking!
For a long-term investor, the monthly job market report or George Soros’s opinion on the Eurozone shouldn’t matter. Even for a short-term speculator, it’s extremely rare (unless specifically trading reactions to news). Most of the experts don’t read markets well. Nouriel Roubini, who once correctly predicted a stock market decline, has since spouted so much nonsense that it completely nullifies his one successful prediction. But it’s not just that the experts interviewed don’t understand the stock market. There’s hardly any doubt that George Soros or his Quantum Fund partner, Jim Rogers, understands markets much better than any of us. It’s also unquestionable that anyone who took Soros’s multiple predictions of the Eurozone’s collapse seriously might feel a bit foolish a few years later. The same goes for someone who, following Jim Rogers, set up a complete commodity market warehouse in the backyard. These opinions, aside from entertainment value, are entirely useless. Did you know that Jim Rogers isn’t bothered if the oil price drops to $40? According to him, it’s even better for long-term prices. But for others, like you, a loss exceeding 50% might be a problem. Do the commentators provide probabilities, position sizes, or stop-loss levels alongside their opinions? No? Yet, these are much more crucial for the ultimate outcome. Trading or investing based on others’ opinions is impossible. Everyone has their own risk tolerance and flexibility that must be fundamentally considered in their decisions. There’s only one solution: never listen to the experts!
By the way, CXO has done a significant job: they translated the opinions of experts appearing in the American media into market positions and examined how well the market justified them. Such an analysis can’t be perfect, containing much uncertainty, but CXO examined so many forecasts that it can’t be far from reality:
The blue line represents the number of forecasts, and the red line represents the cumulative accuracy of the forecasts. After some fluctuations related to the small sample size, it consistently stays below 50%. Believe me, you can achieve this too.
Dominic Feron 