On this episode of The Impatient Investor, Andrew discusses why people should not rely on the so-called investing gurus, who claim to be able to read market indicators. The only market indicators you should rely on are the ones that have proven to be reliable year after year.
“For building wealth, don’t rely on the so-called investing gurus, who claim to be able to read market indicators. The truth is, most of them fare no better than a coin-flipping monkey.”
Full Transcription:
Everybody wishes they had the power to predict the future, especially when it comes to markets. If they could, they’d be rich. Short of that mystical power, people turned to so-called investment gurus for guidance, believing these self-proclaimed experts have the uncanny ability to predict movements in the market and even specific stocks.
I’ll let you in on a little secret investment gurus are frauds. You’d be better off throwing darts at a dartboard. The problem with investment gurus or so-called psychics soothsayers and fortune tellers is in general, every once in a while, one of them gets lucky. And when this happens, the whole world goes flocking to them thinking that one of them has a crystal ball. It’s the 0.1% of correct predictions that get all the attention. Nobody talks about the other 99.9% of failed predictions. And as the saying goes, even a broken clock is right twice a day.
Why do people all over the world, shell out hard-earned money to mystics and fortune-tellers? Because people want to know the future, thinking their lives will somehow be better if they can just predict it. The charlatans don’t have to be right all the time. They just need to get something vaguely, right once in a blue moon so that word spreads, and they can keep their gig going.
Have you ever heard of the blind Bulgarian, psychic Baba Vanga? She supposedly predicted the 9/11 terrorist attacks. Even though the prediction she made was ambiguous, enough people read into her prediction that she received a lot of media attention. The Baba Vangas of the world aren’t restricted to predicting world events. Wall Street is teaming with Baba Vangas. Prognosticating investing gurus, who claim to be able to predict the future of the markets and even specific stocks. There are thousands of investing gurus, spewing gibberish online, or making predictions on cable news about what will happen next with the stock market, or even with specific stocks. The overwhelming majority of these guys are wrong, but the guy that gets it right is enshrined and people flock to him for guidance. How come the media spends so little time covering the gurus, who get it wrong.
Take John Paulson for instance. He was a fund manager who correctly predicted the housing crash and made a lot of money off of it. In the aftermath investors flocked to his funds, hoping to cash in on his perceived ability to predict the market. Things haven’t been going so well for Mr. Paulson since striking gold in 2007. This is what a Bloomberg article had to say about his fund in 2015. “The manager who shot to fame after making $15 billion on the housing crisis in 2007 has struggled to regain its footing since 2011 when bets on the U.S. recovery went awry, losing money in all of its main strategies. Including a 51% tumble in the Advantage Plus fund, Paulson also lost money in investments tied to gold and Europe’s economy, causing assets to dwindle to 19 billion, half the peak of 2011.”
The reality is the stock market is a crapshoot. No one can predict it consistently. There’s data to back this up. CXO advisory group published findings on a study they conducted from 1998 to 2012, in which they collected data from 68 market forecasters. They received more than 6,500 predictions made by these so-called investing gurus and experts. Some predictions involved, whether an individual stock would go up or down, and some predicted the course of the market as a whole. The CXO advisory group study found that on average 46.9% of the predictions made by these investment gurus were correct. In other words, more than half of their predictions were wrong. If you had monkeys toss a coin, you’d be better than these guys.
The problem is these gurus wouldn’t be in business if people didn’t seek them out. Most investors don’t understand that predicting the market is a fool’s errand. I know people call Warren Buffet, the Oracle of Omaha, but if you looked at his investment habits, he is the furthest thing from a psychic. Warren Buffet doesn’t speculate. He has established investing principles and sticks with them because sticking to these principles has always worked for him. He doesn’t chase the sexy IPO’s or the latest shiny stock. He understands that for every Amazon or Facebook, there are hundreds of IPO’s that fail and just like failed psychic predictions, no one hears about failed IPOs.
Warren Buffet looks for established cash flowing investment assets that have a record of profitability and will continue to be in the future. These assets aren’t sexy, but they build wealth, and they can eventually be sold at a profit. Established dividend stocks and real estate fits Warren Buffett’s investing criteria. Issuing the speculation of Wall Street, institutions and ultra-wealthy investors have always allocated a large portion of their assets to commercial real estate. They don’t need a psychic or guru. The most significant predictor of their future with real estate is the past. And what history has demonstrated is that commercial real estate has consistently provided investors with reliable periodic income. Along with long-term appreciation, all backed by tangible assets and uncorrelated to Wall Street and the broader markets.
The only prognosticator we rely on is the past, where we have done very well in the affordable housing segment of commercial real estate investing. Affordable housing will continue to be a reliable cash cow well into the foreseeable future. For building wealth, don’t rely on the so-called investing gurus, who claim to be able to read market indicators. The truth is, most of them fare no better than a coin-flipping monkey.
The only market indicators I rely on are the ones that have proven to be reliable year after year. Like those in the commercial real estate class. Trust the signs of long-term demand found in specific segments of commercial real estate. Like the ones found in affordable housing. Trust the investment basics instead of grasping at mystical straws. For more information, go to www.stoptradinghours.com.
