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Beware of False Prophets

I occasionally have to catch myself from giving unsolicited opinion.  My supposed, #1 cheerleader, Michelle, usually wrangles me back to reality with the timeless stopper: Nobody asked you.   I’ve tried to explain my occupation to her but that was just given the Heisman.  Better to just keep quiet than watch the wife and her sidekick tuck tail out of the room - leaving me to rant at CNBC in solitude.  While my audience is a dwindling 2, many self-appointed financial pundits have much larger platforms.  Regardless of the topic or forecast, a media audience provides instant credibility.  Being correct is of secondary importance.  But what raises my ire is two-fold: first, these soothsayers are way wrong more often than not. Secondly: they are paid much more handsomely than me to be way wrong more often than not.  The latter gripe is a me problem so we’ll dissect the former in this month’s Fiscal Fitness. 

Dow 36,000 By 2007!

This was famed prognosticator, Harry Dent’s call in 2001.  He just missed.  But never fear, sage experts retain the right to change their minds.  In 2015, Dent made a new call: Dow 3300.  In addition, he was kind enough to predict Gold to $750/oz, 15% unemployment and a 40% fall in real estate prices.  Book him for your next cookout.  Not to pick on just Harry, let’s bring Elaine Garzarelli back to the stage.  Her huge claim to fame was correctly calling the 1987 market crash.  She should have just dropped the mic there.  Since then, her market calls have been mixed, at best.  She was fired from Lehman Bros. and had 2 hedge funds shuttered.  Haven’t heard of her? Exactly.

For a more current day, mainstream svengali, consider CNBC’s Jim Cramer. He loves to make animated gestures and give stock picks to faceless investors.  According to CXO Advisory Group, Cramer has been directionally correct 46.8% of the time and below average among a group of 68 financial prophets.  You’d better off flipping a coin – Booyah!    

Aside from being brilliant self promoters, what are some guru common denominators:

Unwavering confidence – they come across self assured, using terms like ‘certain’ and ‘definitely’
Create fear or greed – the more outlandish the forecast; the better. The world ends 12/12/12 makes big headlines.
Cherry pick past results – like an NFL tout, we’ll only hear about the winners; never the losers.
Be vague with future predictions – don’t assign a date.  Peter Schiff has been calling for a dollar collapse the past 15 years.   He might eventually be correct – then he’ll have his AHA! moment. 
Repetitiveness – repeat 1 thru 4 with conviction.

Be on Guard

Faulty Forecasting

So if these prophets of profits are so ordinary, why are we seduced by their forecasts? Perhaps it is Authority Bias[i] at work. If someone is on TV or writes a newsletter book, they have to be sharp. Why do doctors wear white coats? Bankers don natty suits or military wields rank badges?  It just isn’t finance that beguiles us.  Consider the healthcare industry.  We’re bombarded by diet and exercise infomercials.  We all want the quick fix.  In 30 days, I’ll be Sixpack Steve!  Whole30 was closer to WholePaycheck.  Or how about sports? Recreational gamblers love someone else to do the research & give a surefire pick - bad beats aren’t my problem.  So if I eat lean protein, do 8 minutes abs, bet the Colts under and buy some gold coins, my future will be secure.

The longer I’m in this business, the less I think I know.  But “I don’t know” is not an acceptable answer.  The public wants to be led.  We want answers and we want them now – accuracy is just happenstance.  Critical thinking is out of vogue.   Questioning mainstream narratives repels you to ‘hater’ status - whatever that means.  We realize we’re not hired to shrug our shoulders.  Instead I’d suggest taking the other side of the bet: questioning agendas, analyzing pros & cons, probabilities, and what if’s. Extremist, absolutes make good copy but games are usually won between the 20’s; not at the goal line.  Sure, the world could end tomorrow, but up to this point, it’s been a losing bet.  But that’s just my unsolicited opinion.

[i] Rolf Dobelli, The Art of Thinking Clearly, Harper Collins 2013, 26-27