Experts Agree

Sometimes while eating lunch, I will turn on the television in the doctors dining room in my hospital and watch CNBC.

I basically just want to know how well the markets are doing that day. Owning stock is fun and watching The funds I’ve invested in go up and down is not unlike the thrill of a horse race.

But I get much more for my money than a simple reporting of what the market is doing.

I get analysis!

I get expert opinion on which stocks to buy and sell!

I get predictions on which way the market is going!

Lucky me!

But what of these experts? Surely they were picked by the network executives because of their excellent track record of predicting which way the market is going.

Or not.

Steve LeCompte at CXO Advisory must be a very patient individual indeed. For since 2005, he’s been collecting predictions by public experts, And patiently grading them on whether or not the predictions come true.

The results? These experts confidently predicting which way the market was going, have been right an astounding 47.4% of the time!

You read that right.These so-called experts have been right less often than a coin flip.

Here’s a hot tip, write it down; flip a coin

So if you had diligently acted on all of their sage advice, you would’ve done worse than random chance predicted. And that’s even before they charged the extra 2 or 3% expenses for their “expertise.”

Shocking stuff really. And one has to ask why.

Could it be that these guys are skilled sales people hocking their wares, subconsciously (one hopes) trying to bend the future towards their preferred outcome?

Could it just be that they’re in the entertainment business and that outrageous predictions are more interesting than boring ones?

Who knows?
The lesson is clear though; Ignore them.

And here’s one of the messages that almost all of these experts have been agreeing upon of late; now is the wrong time to be holding bonds.

Which I think translates loosely into this:

1. In the recent past. Bonds have done poorly, often losing value at the same time stocks are climbing.

2.Bonds have not been yielding much interest recently.

3. (Probably worth mentioning that bonds will predictably do poorly whenever yields are low. In fact a low yield on a bond really means one thing and one thing only: bonds are expensive right now and their value is likely to go down.)

So if all the experts are agreeing on this, What’s the right thing to do?

(Hint: the answer to this question is always the same.)

You got it. Ignore them.

Why should you ignore them when Bonds are yielding so little and are so obviously overpriced?

The answer comes back to why you should own them in the first place.

The reason you should own bonds is to mitigate the risk of owning stocks.

And the less risk tolerant you are, the the greater the percentage of bonds you should own in your portfolio.

And your risk tolerance should not change based on the current yields on bonds, the recent performance of stocks, or really anything external.

Your risk tolerance is determined by you and you alone. By your life circumstances such as time to retirement. By your emotional makeup and ability to stomach losses. Buy your current and future financial responsibilities and assets.

The very nature of bonds is that they correlate poorly with stocks. So when the stock market was humming like it did during 2013, it is not all surprising that bonds did poorly. Money flows from bonds into stock during bull markets.  Everyone likes a winner.

Conversely, when people panic and pull money out of the stock market, where do they put it? Usually in safe investments like short-term treasury bonds.

This is why during the period from 2000-2010, when there were two big stock market corrections, portfolios more heavily weighted towards bonds did better than aggressive ones.

And it seems to me that maybe all these market gurus are just echoing our own thoughts. When we see stocks go up and bonds go down, it is human nature to wish we had more stocks and less bonds. So these experts are really just telling us what we want to hear; “It’s okay to do what you want. Your intuition is correct.”

And since we want to hear it, they get good ratings, and the circle is closed.

Which is all well and good, as long as we have the spine to just ignore these experts.

(If expert is, in fact, the right term for someone who is wrong more than half the time)