Why did the investment advisor visit a psychic? He wanted to know his clients’ futures.
Stock market experts, ah yes, the supposed purveyors of stock market information - why the market is up or down on a give day or predicting the market / individual stocks. How could one not trust these knowledgeable experts that hold the keys to the mysteries of the stock market and the economy at large? After all, they are always so on point and never, ever get anything wrong, right?
What they thrive on is nothing more than drama, only interested in stoking controversy, creating sensational headlines, and stirring up fear and uncertainty in their readers / viewers. And the sad part is, people actually fall for it. It’s as if they forget that the stock market is an unpredictable entity (yes, both Shiller & Fama are right - there is a reason why they won the Nobel Prize in Economics together) and that no one, not even the so-called stock market experts, can accurately predict its movements.
Let’s start with a prime example of their expertise (read: trying to understand why Mr. Market behaves in a certain way on a particular day or what will he do next). Remember that time when they were all in a frenzy over the impending economic collapse, warning us to sell all of our investments and hide our money under a mattress? And then, lo and behold, the market rebounded and reached new highs, leaving those who took the expert advice feeling foolish. Or how about when they touted a particular stock as a sure thing, only for it to tank, leaving investors feeling burned?
The talking heads many news channels bring on as experts simply spout off grandiose predictions, pontificate on the latest trends and events, and then have the audacity to claim that they “got it wrong” when things don’t go according to plan. It’s like a never-ending game of financial charades, where everyone is just guessing and no one has any real answers. I have to say there are very few experts who don’t do this.
Some channels and magazines have dedicated space allocated these experts on a regular basis. They constantly seek out the latest financial scandal or controversy, and then blow it out of proportion, creating a sense of panic and fear in their readers / viewers. There are shows that play up the drama by using flashy graphics, ominous music, and of course, their experts to add their two cents or in some cases an expert host whose primary objective is to keep viewers by talking $h*t. All of this just for the sake of getting higher ratings - because let’s be real, who wants to watch a boring, factual show when you can watch one filled with sensationalism and drama?
And what’s the result of all this drama-mongering? A public that is misinformed, scared, and more often than not, taken advantage of. These news shows don’t provide real, actionable advice that can help people make informed financial decisions. Instead, they feed on the public’s fears and uncertainties, exploiting them for their own gain.
Next time you’re tempted to tune into a “ finance show” or read a newspaper column on stock recommendations, remember this: they are not a reliable source of information. It is pure drama - plain and simple, more interested in creating sensational headlines and stoking controversy than providing accurate, helpful information. If they could actually predict what was going to happen in the financial markets, they’d be doing it themselves, not just talking about it on TV or writing it on a newspaper.
What does the data say about professional experts
Let’s review another group - investment fund managers who actively manage your money. You might imagine these group should be better than experts you see on TV - in fact it’s their duty to produce the best returns for their clients.
The S&P Indices Versus Active (SPIVA) reports are widely respected studies that compare the performance of actively managed funds to their benchmark indices. The SPIVA results consistently show that actively managed funds underperform their benchmark indices. This is true across all asset classes and markets. The underperformance is not limited to just one or two years but has been consistent over the long-term. In fact, the SPIVA reports have consistently shown that the majority of active fund managers underperform their benchmark indices over the long-term.
This means that investors who are seeking to achieve market returns are better off investing in low-cost index funds or ETFs. Investors who are considering investing in actively managed funds should be aware of the potential risks and limitations of these funds, including higher fees and potential tax implications.
The importance of data in the investment world cannot be overstated. Data allows investors to make informed decisions based on historical performance and trends. It also helps investors to understand the risks and potential rewards of different investment strategies.
One important concept related to the use of data in the investment world is the Grossman-Stiglitz Paradox. This paradox suggests that the market may not be efficient if investors have different levels of information. In other words, if some investors have more or better information than others, the market may not be able to accurately reflect the true value of an asset. This can create opportunities for some investors to earn outsized returns by exploiting the information asymmetry.
In this context it is worth mentioning that despite the criticisms leveled against specific financial news shows and stock market experts, there are some channels that produce good content. These channels do shows based on pure news reporting, investigative analysis, and data-based documentary to provide viewers with accurate and unbiased information. For example: FT & The Wall Street Journal are two financial news sources that are known for their in-depth reporting and analysis. Bloomberg often relies on data and research to provide viewers with accurate information. CNBC provides viewers with financial market updates, analysis, and interviews with CEOs and industry experts. The channel has a reputation for producing quality content that is based on accurate data and research. Just stay away from the stock market experts and drama, you will be fine.