STREET DOGS

When listening to the experts Most of us gain some comfort from expert advice when making a difficult decision. We all need the reassurances of an expert’s talents and experience. But we should not forget that experts can be as wrong as the rest of us. Or that it is essential to analyse their motives. As President John F Kennedy lamented after the Bay of Pigs fiasco: “How could I have been so far off base? All my life I’ve known better than to depend on the experts.”

Classic errors abound in military, philosophical and scientific areas. In the investment field, the record is perhaps even more dismal. For example, just before the 1929 stock market crash, Yale economist Irving Fischer, the leading proponent of the quantity theory of money, said, “Stocks are now at what looks like a permanently high plateau.” Jesse Livermore, after making a fortune on the crash, said in late 1929: “To my mind this situation should go no further,” meaning, of course, that the market had hit bottom.

John D Rockefeller put his money where his mouth was: “In the past week (mid-October 1929) my son and I have been purchasing sound common stocks.” One month later, in November 1929, Henry Ford is quoted as saying, “Things are better today than they were yesterday.”

This confirms that even the greatest industrialists and most successful stock operators are not immune from making erroneous statements and bad decisions.

An alternative to using a single guide is to follow a number of different experts simultaneously.

Unfortunately, this solution is even worse because experts as a group are almost always wrong. Data collected and published by Investor’s Intelligence magazine in the mid 1980s showed that most advisers are bullish at major market peaks and bearish at the troughs.

(First published December 4 2003) /Michel Pireu (pireum@streetdogs.co.za)