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Tags: experts | anti-experts | investor | advice

Experts and Anti-Experts

Street sign that reads Right Way, Wrong Way - great concept background
 Melissa Dockstader | Dreamstime.com

By    |   Friday, 29 March 2019 04:22 PM EDT

It’s the age of the expert. It has been for some time.

After all, capitalism rewards specialized skills over a generic skillset. That’s why the surgeon earns more than the gardener—or even more with a butcher, even though both need the skill of being able to work with blood.

I’ve already stated why I find experts dumb. So let’s invert our thinking a little bit and see what else we can dig up.

In many fields, there exist what I call anti-experts. Instead of being wrong occasionally, as an “expert” would be, they’re the ones wrong more than right. 

They proliferate in finance, likely because their mistakes can continue for a prolonged period of time. They’re also often seen in public policy, academia, and governmental roles, where they can be difficult to remove once they’ve gotten locked in.

Simply put, these anti-experts are the folks who tend to get things wrong. In some fields, say, air traffic control, that would be ground for their immediate and swift removal.

But I actually find them incredibly valuable. I want to know what some of these anti-experts think. That way, I know that I can do the opposite of what they’re doing with confidence that I’m going to be more right than wrong.

In that way, these anti-experts, who are right about as often as a broken clock, at least provide some value. A broken clock may be right twice a day, after all, but without the context for the correct time, you won’t know exactly when it’s right.

For instance, I follow some people in the financial field who have built a career out of one of the stupidest things an investor can do: extrapolate an existing trend indefinitely.

While I’m sure the person who wrote a book back in 1999 touting the Dow Jones Index hitting 40,000 made the smartest arguments they could at the time, the fact that 20 years later we’re still not there, and have had two major drops in the market along the way, should give rise to caution.

Ditto the writers expounding on real estate in the mid-2000’s after prices had been rising at an unsustainable rate for years. Most anti-experts are better at selling books than being accurate!

The closest people I know to experts tend to do the opposite. They look for bargains, and a chance to buy from the guy who paid a record price for something—be it a stock, a piece of property, or even a piece of art or rare car. When the record-payer is desperate for cash, usually just a few months or years down the line, the deals become truly great.

Policymakers can become anti-experts in their field as well.

Sticking to finance, recall that markets fawned over Alan Greenspan during his 20-year tenure of the Federal Reserve. But he overestimated the dangers of the known and priced-in Y2K bug, and largely ignored the growing housing bubble, relying on past behavior for the national housing market while ignoring the absurdly loose lending and mortgage underwriting standards of the time. His one attempt to verbally reign in tech stocks came too early—and was essentially ignored against his actions on the policy front of keeping interest rates low.

Any one of these things would be a mistake for the Fed—the agency responsible for keeping the economy stable. But all these things in tandem make the argument that Greenspan was an anti-expert in that core task, instead focused on growing the economy, even if it meant at an unsustainable pace.

When it comes to investing, there can truly be no experts, because nobody has perfect knowledge of the future. What does matter is the ability to see and exploit existing trends or inefficiencies in the market, and ignore the so-called experts who have predicted nine out of the past two recessions.

For instance, today’s markets are driven by a lot of nanosecond-fast trades by algorithms running real money. I can’t compete with that speed. But I can compete by my ability to think. I don’t need to try to skim a penny out of every trade made in the market, when there are fortunes to be made elsewhere by taking a longer-term approach.

And that longer-term can still be pretty short. Buying an oversold company before a major move up can give a great return, say 10 percent from buying shares or 50-100 percent by buying a call option. With that kind of return on shares, and given the market’s average annual return, all that’s needed from that initial rally is to keep it.

If the company pays a dividend, that helps. If I can also use covered calls once shares move from oversold to overbought, companies can trade in a range indefinitely and I can beat the market. You can too.

The closest thing to investment experts we have take this longer-term approach. They also take an active approach to investing, picking and choosing the best prospective companies going forward. The rise of passive investing can create some considerable problems for investors.

When everyone’s invested in the same mix of companies, they’re leaving great names outside the index off the table. And when a company in the index isn’t faring well, they have no way of increasing their capital to that oversold opportunity instead.

Finally, human nature being what it is, we now have decades of observations about passive investing. Most individual investors still heavily lag the overall market. When the markets go down, they sell their entire index, only to buy in after it’s started going up again. At least selling one fund is more efficient than selling a basket of stocks, to the lament of brokers everywhere.

My advice? Find people who know what they’re doing. Listen to them. Find people with a terrible track record who are still in business. Chances are they’re still in business so that successful investors can have an anti-expert to do the opposite of. Look to buy when the market is selling, and look to sell when people seem willing to pay up for an asset. The closest people we get to investment experts do the same thing, time and again to profit.

And remember, experts can get it wrong too. Taking the expert and conventional advice with a proverbial grain of salt provides enough of a healthy dose of skepticism to not get blinded.

Andrew Packer is a Senior Financial Editor with Newsmax Media. He currently writes the Insider Hotline investment advisory, serves as investment director for the Financial Braintrust, and writes the monthly newsletter Crisis Point Investor.

© 2023 Newsmax Finance. All rights reserved.

I follow some people in the financial field who have built a career out of one of the stupidest things an investor can do: extrapolate an existing trend indefinitely.
experts, anti-experts, investor, advice
Friday, 29 March 2019 04:22 PM
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