The “Experts” Have No Clothes

I hope you had a great “holiday season!”  No complaints here as we head into 2015 without a clue as to where the market is headed.  I have an opinion regarding such matters but as I always say, “god forbid that I would ever make an investment decision based on that opinion.”  But being clueless doesn’t stop the “experts” who make a living, gazing at their crystal ball.

Once again, they are riding into the new year, wearing no clothes.  It’s the same story every year, but for many investors, the fairy tale about successful active management, never gets old.  For them, the future is simply too scary, without a forecast.

For the past 25 years I have been documenting the failure of these experts and teaching people the “good news” that an accurate forecast is not required to have a successful investment experience.  Back in the beginning I would simply make xerox copies of the annual December articles publishing the experts’ forecasts for the coming year. Twelve months later, usually at our annual holiday party, we would look at the results.  It was a great way to debunk the myth, of successful active management, and to celebrate the superior returns of a simple diversified and disciplined strategy.

Most advisors I know use their own version of this annual ritual to drive the message home and thanks to all the advances in technology, gathering the data is so much easier.  In the past, I had to save copies of all the December issues of each publication in order to document the results each year.  But now there is a very inexpensive app that enables anyone to download past issues.  It’s called Next Issue.  Reading the “Where to Invest In the Coming Year” 12 months after they were published is not only entertaining, it’s very enlightening.

And for those of you who still have faith in the experts to make an accurate forecast, check out what has happened this past few months to the price of oil.   Now go back to the beginning of last year and see what the experts were forecasting.  It doesn’t mean these experts are dumb, it simply shows how difficult it is to know the future.  That is what creates so much uncertainty for investors, and the only way I know to deal with that uncertainty is to be as diversified as possible and to stay disciplined.  It really is that simple.

9 Comments

Filed under Advisors, Investors

9 responses to “The “Experts” Have No Clothes

  1. Outstanding, thanks for being such a champion of the simple diversified and disciplined investment strategy

  2. Bo.Cornell@dimensional.com

    Mr. Wheeler I have an APP too. It is called Weston Wellington III. He is quite reliable and wears a bow tie. Sort of an Ivy League intellectual look.

    I will send you a picture.

    Your biggest fan,

    Bo,
    Austin TX
    cubicle 4106

  3. Phil Henry

    Dan, simply brilliant, as usual! Keep your blogs coming/ very refreshing.

  4. Robert Wheeler

    Great advice. Never know when world events will change predictions, e.g.,the changes in Yemen and Saudi.

  5. Pingback: Here's What Sheri's Been Reading: January 2015 Edition

  6. Real money managers (not newsletter types) saw the top in oil long ago. Those of us who manage hundreds of millions of dollars have gotten to this point by being right and by being early (although I do give all credit to my Lord). I liquidated my clients out of oil stocks in June 2014. If you knew how to do it, you’d be managing hundreds of millions of dollars, too–not just writing about it. Believe me, you won’t find me in any of your statistics.
    -Scott Willis-

  7. DW, I used to use DFA 100% in portfolio management when I started as an RIA. I’m very familiar with DFA. Now I don’t use it. I use strategic and tactical modeling and I beat my old DFA portfolios performance by a significant margin. Believe me when I say that combining technical analysis with fundamental analysis is extremely powerful in portfolio management. More powerful than a passive DFA portfolio, no matter who’s managing it. DFA has wonderful building blocks for portfolio management, which I’m sure you know. However, there are other options I prefer.
    -Blessings

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