Friday, May 22, 2009

The "Experts"

Perhaps more so than ever, the average American wants financial experts to explain to them what's happening in the market. Why, on any given day, did the market go down? More important, they ask, what will it do in the future? And read the Wall Street Journal, watch CNBC, or check out one of many blogs, and you'll find thousands of different thoughts on those questions.

Unfortunately, I rarely hear any of these "experts" give out the one piece of advice that they all should know--no one has any idea what stocks will do tomorrow, much less a year or 10 from now. Study after study has shown that picking stocks is a worthless exercise. Most mutual fund managers can't beat the market year-after-year, much less your average amateur investor*. It's not even really clear whether the great Warren Buffett is a really, really great investor, or just extraordinarily lucky.

* Please don't pick stocks and don't invest in actively managed mutual funds. Buy an index fund with low expenses. Or throw darts. Or hire a chimp to throw darts. Seriously.

If people would even really think about what some "experts" are telling them, this would all be clear. For instance, Zero Hedge points out today that a research piece by Morgan Stanley upgraded the price targets on most major banks by a median of 33%. Part of its rationale: using 2012 for normalized earnings. 2012?!?!?!? If only they had been so prescient about what would happen three years down the road in 2005, we wouldn't be in the mess we're in. Does anyone really believe these people can predict this?

Why anyone gets paid to give this sort of advice--and why anyone would buy it--is beyond me.

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