We already see hundreds of real and made-up experts broadcasting their views on 2016: “Best Ideas for 2016”, “Top 10 Investments for the next year”, etc.
Yet, most of these prognostications would be a continuation of prevalent trends and they look very smart and convincing. The funny truth of life is that Perception is reality. Therefore, people with biggest megaphones dominate media. True expertise at the outset is really hard to assess – a suit and a credible job title skews perceptions.
Just make you sure that you check the credibility of these experts before assigning any weight to their views. Here are some examples of questions to ponder:
- If they downplay the chances of the upcoming recession in the US (and globally), please check what they said in 2007-2008? Did they call for a major recession back then? Hint: 98% of them didn’t!
- If they talk about the importance of the Fed for rates – please check what they say the same thing in 2015, 2014? Did it matter back then? Hint: NO!
- Check what they said about the European recession in 2011-2012. Did they panic at the bottom? Did they call for the break up of the Eurozone in 2013?Hint: YES, they did!
- Back in 2013, did they argued for interest rates to go up to 4-5% by 2015? Hint: most of them did!
Let me make it clear: we are not splitting the shades of gray here – long term forecasts of most experts differ VERY notably from the reality. Why are so many “experts” on economy and capital markets wrong DIRECTIONALLY so often? The reasoning goes beyond what Benjamin Disraeli famously described: “It is easier being skeptical than being right”. At the root of many reasons why so many public experts are systematically so profoundly wrong is the conflicting nature of explaining a trend and the mean-reverting nature of economic fortunes. It is so easy to explain trends which are well established! You would sound so well reasoned and convincingly logical. Yet, those well-grooved in trends are the ones most like to revert back! Why? Again, the self correcting nature of the market economy plants the seeds of its eventual recovery at the bottom. But human emotions always lead to selling at the bottoms and buying at the top. In the markets, bottoms are made not when a new buyer emerges but when the last seller is exhausted.
I hoped that I do held myself accountable – I called for US interest rates 10Y to stay around 2.25% (read my articles) and I made this claim back in 2013 (although not released to public). This is a culture of buy-side investor – you live and die by the sword! Next week we will publish additional forecast for major investment opportunities and trends for 2016. Hint: most of my forecasts would be out-of-consensus.
Remember: it is YOUR job to hold experts accountable and scrutinize their noisy commentary.