Should You Believe Expert Forecasts?

By Gerald Tay (Guest Contributor)

“If I have noticed anything over these 60 years on Wall Street, it is that people do not succeed in forecasting what’s going to happen to the stock market.” – Benjamin Graham (Warren Buffett’s teacher)

As happens every year, property firms – including property agents, mortgage lenders, property ‘gurus’, and property analysts – have released their end-of-year predictions for where prices will go in 2014. Many pundits expect prices to rise slightly this year, but not by much.

These ‘expert’ forecasters seemed to possess the ‘I know-it-all’ investment mentality and offer to share their prophecies with the public.

Human fascination with the future can be traced back to prehistoric times. People have always wanted to predict the future for psychological reasons (to reduce their fear and anxiety about the unknown). The human desire to foresee the future has been exploited by some for profit, fame, or power.

Selling Prophecies for Profit, Fame, and Power since Ancient Times

The Temple of Delphi was the richest institution in ancient Greece and was the forecasting analyst of ancient times. Its power of prophecy was widely believed in.  Delphi is perhaps best known for the oracle at the sanctuary, because it was attributed to Apollo, God of the Sun, who could see and therefore foretell the future for all those who could afford the services of his oracle.

The oracle gave her predictions in such a way as to make their invalidation difficult. Those seeking advice were often told what they were expecting to hear. If that was not possible, the prophecies were equivocal: their wording was obscure, were general, or were impossible to check against reality.

Delphi was not the only place selling prophecies. Since the dawn of civilization priests, astrologers, prophets, fortune tellers and the like have sought to satisfy the human need to predict the future. The Temple of Delphi became the best known and most successful of all because of the uncanny shrewdness of the priests who ran it. They were full-time employees, the first professional forecasters, who had an obvious interest in making people believe that their oracle could foretell the future. Their livelihood and prosperity depended on that accomplishment.

Judging from the unquestioned acceptance of their prophecies, the richness of their holdings, and their lasting influence (more than 500 years), we must conclude that theirs was a success story, although many today would say that the predictive power of their prophecies was zero.

Are things any different at present?

Examples of Present-Day Prophecies

Fore-telling what we want to hear: “The Property Market will continue to rise by another 10% by the middle of next year.” (Forecasted by a well-known property ‘expert’ in late 2007 before the severe market correction of 2008)

Double meaning: “All evidence indicates that a great correction is in the making, and unless immediate remedial action is taken, the results will be catastrophic.”

Obscure: “Markets can often seem perverse. But recent weeks have added a bizarre new twist. Lehman Brothers is only a freak event and we may see market rebounding to normal again.”

Cannot be checked against reality: “Carbon dioxide will increase the earth’s temperature resulting in the melting of the polar ice in 30,000 years and sink Singapore.”

Another failed prophecy: “Gold price will hit $2,500 per ounce by end of 2013”, predicted by a gold ‘expert’ in end 2012.

Whether the experts are wrong or right in their predictions of the future is not the main issue. Rather the more worrying problem is that ordinary investors are simply taking those predictions and investing based on what the experts (or other people) say.

So if an expert says the property market will rise and reach certain levels this year, unwitting investors will jump the gun and start queuing at property show-flats and buy – like a herd of lemmings.

One of the greatest myths of investing

One of the greatest myths about investing in property, stocks or other investments, is that in order to be successful, you must be able to predict the market’s movements. Why people assume this is beyond my utter comprehension!

Take property – many falsely assume that any property is a sure-win investment due to the single factor of demand and supply in land scarce Singapore with a growing population. They conclude that regardless of whatever price they buy at, prices will rise indefinitely in the future and guarantee them a profit. These naive investors fail to ignore many other crucial factors involved that are intricately connected like a spider’s web in the rise and fall of property prices in Singapore.

For others, the desire to predict is borne out of human nature, which puts a premium on certainty. We love to know what will happen in advance. Hence, it is usually assumed by the beginning investor that to be successful, one must first become an expert at forecasting future market trends. Experienced investors know, in fact, that nothing could be further from the truth.

People consider experts superior beings while forgetting that they are normal human beings who have the same mind that any human being has.

What most experts fail to notice is that past experience is never an indication of future results. Just watch how experts give recommendations about stocks and you will laugh. When they recommend a stock that keeps falling they shortly change their minds and recommend selling it, and when it starts going up again they quickly recommend buying it.

How to succeed by disregarding expert opinion and advice

Like other successful investors, I refused to conform to society’s norms and beliefs. Neither will I follow ‘expert’ advice. Just like ordinary people, most experts know little and are usually wrong.

The only expert advice I’ll ever ask for and listen to are from people who have succeeded in both actions and words.

I could have decided to believe the experts and invest based on their opinions and advice; I would have been much poorer today!

Forgive me for ending with more investing clichés, but there is another old adage that is very much worth repeating: “What’s obvious is obviously wrong.” This means that knowing a little bit and simply tagging on the advice and actions of others will only have you following the crowd like a lemming. Like anything worth anything, successful investing takes hard work and effort.

Becoming rich is not about luck, starting big or being intelligent in forecasting the future. It’s all about having certain beliefs about money and life.

By guest contributor Gerald Tay, CEO of CREI Academy Group, who exposes widely-held property investment myths that have proven highly ineffective in creating wealth, and prevent a comfortable retirement for the ordinary investor.

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