As you might imagine, I read a tremendous amount of market research from varied sources. I read it all with a jaundiced eye since I principally believe that most of the folks who publish this stuff are trying to sell it. I see absolutely nothing wrong in that, but it does provide a filter and it should for you as well.
I also have a very difficult time with the forecasting flip-flops that appear all too often. Sometimes it’s a subtle thing and other times it’s a punch in the mouth. For example, one publication said that growth in the fourth quarter would come in a little better than 2.5% and then this week said it would come in at 3%. Now, no doubt, they can couch their prognostication by saying that 3 is more than 2.5, but I would suggest that .5% on a 2.5% forecast represents a 20% bump and all in one week. I want to know what happened in that week that made them revise their estimate by that amount.
The point remains that what generally represents research is, at best, a guess. I have to quantify that last remark because some might deem it harsh. I am casting no aspersions at any analyst. I think the folks that work in the financial services industry are doing their very best to be right. After all, there is no future in being wrong, especially if you are consistent in that regard. The fact remains that the deck is stacked; after all, the stock market over 200 years has been up roughly 3 out of every 4 years. So, they ought to be right. What is disturbing is how often they end up wrong. One only need look at the number of advisors who outperform the S&P 500 each year to realize that it is a very short list.
So, what gives? Are they stupid? Are they crooks as the Occupy folks would have you believe? I actually think the answer lies with the devil and we all know the devil lies in the details. What I think actually makes most professionals wrong on a fairly consistent basis is the same thing that makes most of the amateurs wrong and that is a lack of discipline.
The ability to master a strategy comes with rules that must be obeyed. This is a very simple and easy truth. It is also the hardest thing to do especially when you are dealing with your own money. Professionals should know better and some do (clearly, the most successful ones), but most panic just like you at precisely the wrong time. They also get greedy (just like you) at precisely the wrong time.
So, what works on Wall Street? It’s the same as it has always been. The investor who can be on the right side of his or her own fear and greed will succeed. Sir John Templeton said it best:
“The time to buy is when there is blood in the streets, and it’s better if the blood is your own.”
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