Stock Market Experts on TV Are So Smart…But Can They See the Future?

Transcript

Are you one of those investors captivated by a TV or social media personality who peddles themselves as an investment “expert”? A day doesn’t go by where someone isn’t being interviewed by a popular media outlet asking for their investment insight because they have some amazing track record over a recent period of time or maybe they predicted some major market event that did in fact happen. The media loves talking to these people to get their take on what they see coming because if they were right before, maybe they know what’s going to happen next.

I hate to bust your bubble, if you are one of the many who think listening to these “experts” somehow helps your investment decision making process. Because if you ask me, I think these shows should have disclaimers similar to tobacco companies that say something like, “listening to this may be harmful to your investing.”

Welcome to the first season of Invested Poorly: Sad Tales of FInancial Fails, a short-form podcast designed to help everyday investors make wiser investment decisions by learning what NOT to do with their money. Host Jeff Harrell shares timeless stories from his former life as a financial advisor, about the poor—and irrational—choices he witnessed investors make that disrupted their journey to financial independence, or FI. Your ability to recognize, and avoid, similar mistakes could make all the difference for you along your path to reach FI.

Check out the “Introduction” episode for more background on Jeff, why he created this podcast, and how it can guide you to becoming the hero of your own investing story. Now, on with show.

Buy, buy, buy. Sell, sell, sell. We are all well-aware there are vast amounts of “experts” out there who love giving investment advice. While their methods may vary dramatically by personality, the one thing they all have in common is they are trying to captivate their audience and keep you engaged by impressing you with their uncanny knowledge of the financial markets. There are multiple channels dedicated solely to bringing on the best minds in the investment world to inform their viewers of what is going on, seemingly to help you make better informed decisions.

Well, get ready to view these channels differently because I’m going to call them out for what I think they really are… entertainment. That’s right, the sooner you recognize that stations like CNBC, Bloomberg News, and Fox Business are first and foremost entertainment channels, the better investor you are going to be.

So, before I go any further, I want you to answer a question for me. Do you think anyone can predict the future? I’m pretty sure the majority of you listening will answer that question with a reasonably confident, no. But for some reason, when it comes to investing, we seem to think it’s possible. Over the years, I’ve met countless investment professionals who could knock your socks off with their understanding of global economics, business management, politics, financial accounting, you name it – everything you could possibly think of related to financial markets.

Many of us are captivated by these people, even if we don’t understand half of what they’re saying. We just want to see if we can obtain some type of investment recommendation from them because they seem so smart, they must have some great stock tips or investment advice that is guaranteed to be a big winner in the future. I hate to be the bearer of bad news and turn into captain obvious here, but trust me, you will never meet an investment “expert” who can actually predict the future. And the evidence supporting this is overwhelming.

One of my favorite resources I recommend all investors check out when trying to decide how to manage their money is the SPIVA® research from Standard & Poor’s, available on S&P’s website. I’ve included a link to this website in the description of this episode.  What SPIVA® does is measure the performance of actively managed funds against their benchmarks to see how many of them outperform. I seriously hope you take some time to look over the SPIVA® research because I think you will find the results a bit shocking.

Let me give you a couple data points that jump off the screen. In the U.S., over 85% of actively managed large cap funds have underperformed their benchmarks over the past 10 and 15 years. Almost all of these funds have very smart “experts” managing them, and if so, why do so many of them fail to outperform an index that isn’t managed by anyone? This is pretty damning evidence if you ask me, which suggests predicting the future is a fool’s game when it comes to investing.

Now, before you start to think this might just be a U.S. thing, nope, no such luck. If you broaden your view to look at Canada, Mexico, Brazil, or even all of Europe, the results are just as bad, if not worse in some cases. Trust me, this is not a website you are going to be led to by someone being paid to manage your investments, because you just might question whether you actually need their services when the odds are stacked so heavily against them.

Now, I know what some of you might be thinking. You’re saying, Jeff, if predicting the stock market is so difficult, why are there so many “experts” on TV that suggest otherwise? The answer is very simple. Probability. Think about it. Even if 85% of the “experts” are underperforming a passively managed index, the remaining 15% of “experts” out there worldwide are outperforming. With millions of “experts” all over the world, this still makes it very easy for the financial news, or as I would prefer to say, entertainment channels, to find countless “experts” who are beating the market. Even 15% is a lot of people when we are talking about millions.

I hope this is starting to sink in because I want to make sure I drive this point home loud and clear. Sheer probability suggests there will always be numerous investors who defy the odds and beat the market, but that doesn’t suggest to me for even one second that any of those people can predict the future. I personally think they just happen to be the lucky few who were in the right place at the right time. I can’t speak for you, but for me, knowing the odds are heavily stacked against me to beat the market makes it an absolute no-brainer to just hit the “easy button” and beat 85% of others out there by setting it and forgetting it.

Now before I conclude this episode, I don’t want you to overlook another, and probably even bigger, benefit of simplifying your investments and putting everything on autopilot by using passively managed index funds. If you choose to go down this path, you will gain exponentially MORE of the most valuable resource we all want MORE of. Time. I mean, even if you are capable of defying the odds and eking out a little extra return each year, is the amount of stress it creates, and time you have to spend to do it, even worth it? I guess this is for you to decide.

But I encourage you to really think about it, because hopefully this gets you to recognize the tradeoff. Ask yourself: which one is truly more important, time or money?

I sure hope you enjoyed this episode of Invested Poorly and will be able to take something from it to improve your decision making as you navigate the twists and turns of your personal investing adventure. Be sure to check out my website at AreYouFI.com (that’s A R E Y O U F I dot com) where you can find resources and show notes with the charts and graphs I mention during the episodes. These are like little treasure maps that can help you choose more wisely along your quest to reach FI, or financial independence.

Never forget, in the short-term the stock market is unpredictable, and as my mischievous little nephew likes to say, “things just happen”! So focus on the long-term, by controlling your emotions, simplify your investments, and always… ignore the noise.

I’m your host, Jeff Harrell.  Thanks for listening.

Invested Poorly: Sad Tales of FInancial Fails was created for informational purposes only and should not be relied on for specific tax, legal, or investment advice. You should consider consulting a qualified professional to review your situation before engaging in any transactions. Investing involves risk, including loss of principal and past performance is no guarantee of future results. 

This podcast was produced by Ted Cragg. Learn more about creating podcast mini-series like this by visiting QuickEditPodcasts.com.