The truth about experts….

Tuesday 15th November 2016

In this issue of Money Truths….

  • A hurricane out of the blue….
  • How did they get it so wrong?
  • Lest we forget….
  • The lesson to take away….

A hurricane out of the blue….

The experts never stood a chance.

The columnists, leader-writers, talking heads, commentators, analysts, TV anchormen, insiders and pollsters – none of them saw it coming.

They were like weather forecasters working with faulty equipment. They’d fed in all the appropriate data. They’d spent months pressing the buttons, turning the dials and cranking the levers. They’d studied the read-outs….

Everything they saw convinced them the weather was set fair. Everything confirmed what they already knew – what their years of experience out in the field had taught them….

Hilary Rodham Clinton would be elected the 45th President of the United States of America. The victory editorials had already been written. Some of them had already been aired and published. It was hardly worth counting the votes….

Had just one them looked up from his laptop screen and taken a look out of the window onto the real world, he might have noticed clouds forming in the skies overhead.

Had just one of them gone to the trouble of recalibrating his equipment, he might have noticed the drop in atmospheric pressure.

As it was, the hurricane came completely out of the blue. Nobody was expecting it. Nobody was prepared for it. Nobody had battened down the hatches.

When the American electorate confounded expert opinion and voted Donald Trump into the White House, the experts were caught out on the open ground with their pants down.

It was too late to take evasive action. The hurricane tore right through them – reducing their carefully crafted notions, opinions and certainties into so much firewood. The experts were blown to high-heaven.

How did our experts get it so wrong?

As with all natural disasters, the aftermath was characterized by shock and devastation.

The people left behind stood gawping at one another – glassy-eyed and slack-jawed. They surveyed the scene, shaking their heads. They couldn’t believe what they were seeing. Such was the twisted carnage laid out before them, they couldn’t quite take it in.

Some were crying. Some were angry. Others shook their fists at the sky and bellowed incoherently. Some talked about moving to Canada. Others took to the streets and made a nuisance of themselves….

Almost every major mainstream newspaper on the planet published a story called ‘How did our experts get it so wrong?’

Any experts left standing, and foolish enough to answer their phones, were wheeled out in front of the cameras and asked point-blank in front of the millions of viewers at home: ‘You are an expert. How could you call it so wide of the mark? What went wrong?’

The red-faced experts stuttered and stammered. They squirmed in their seats. They fidgeted and scratched the backs of their heads. It was hard to watch – and very cruel. But 24-hour rolling news requires a steady diet of fresh meat. None can be spared. Not even the experts.

The funny thing was that the whole pantomime was played out as though we were witnessing something unprecedented…..

As though ‘the experts’ had never got it wrong before…. As though they had, until now, proven infallible – a rock-steady guide to what will be and what it will mean. Sometimes I marvel at how short and unreliable the collective memory is….

I think Philip Tetlock – co-author of Superforecasting: The Art and Science of Prediction – had it right when he said that the average expert is ‘roughly as accurate as a dart-throwing chimpanzee’.

I think the media and the public often mistake ‘expertise’ with ‘being right’ or ‘knowing’. It gets forgotten that political and economic forecasts are produced by ‘experts’ precisely because nobody knows what is going to happen – including the experts doing the forecasting.

So it should come as no surprise that expert forecasters get it wrong at least as often as not – and probably more so….

Lest we forget….

The failure of the experts to call the Trump presidency is not an isolated aberration or an unprecedented blemish on an otherwise flawless record. It is just the latest instance in a long track-record of experts getting it wrong….

It is not a surprise. It is not shocking. It is hardly even comment-worthy. Experts get it wrong repeatedly. They always have. They always will.

I took a couple of minutes to make a list of wrong-headed expert opinions that come to mind. Not an exhaustive list – but one that illustrates the argument that we probably expect too much of our experts if we expect them to always get it right and to always guide us correctly down an unlit path….

In 1999 James Glassman and Kevin Hassett wrote a book called Dow 36,000 in which they predicted that the Dow Jones stock index would triple in the years ahead and hit 36,000. That day may one day come. But it hasn’t dawned yet. The Dow Jones stock index is still only half the way up that particular mountain.

In December 2007, Abby Joseph Cohen, a chief investment strategist at Goldman Sachs, said the S&P 500 would hit 1,675 by the end of 2008. It ended 2008 below 900.

In 2007 Alan Greenspan, former chief of the US Federal Reserve, wrote The Age of Turbulence. He argued that double digit interest rates would be needed to control inflation. Pretty much ever since, rates have been close to zero….

In 2010, Richard Branson said:  ‘….the next five years will see us face another crunch – the oil crunch.’  He predicted a supply shortage and high prices. Five years later, the price of oil was lower than when Branson made his prediction.

When Britain opted not to join the euro and to retain pound sterling back in 1992, experts predicted all-manner of economic calamity that never materialized.

Leading economists – almost to a man – failed to see the global financial crisis of 2008 coming….

Experts failed to see that the British public would vote for Brexit in June. Expert pollsters told hedge fund managers that the Remain side would win – maintaining that position right up to the point the Remain side lost.

The FTSE and the pound rose (on the initial advice) and then crashed (when it was proved wrong). Expert financial forecasters then told investors that the FTSE 100 would fall further. Instead, it quickly recovered lost ground and went on to gain more.

Many ‘experts’ had said that a vote for Brexit would trigger a series of seismic financial shocks – reducing the British economy to rubble. Those apocalyptic visions proved to be unfounded. Even the Bank of England has since eaten humble pie and conceded its predictions of a post-Brexit economic slowdown were ‘wrong’.

And the experts continue to get it wrong….

In the run-up to Trump’s victory experts all over the globe were telling investors that a Trump win would mean a stock market crash. Stocks did fall a little. But they swiftly bounced back. Now the market is reaching for the sky again.

The lesson to take away….

An expert can explain in detail how candidates are chosen by the Democrat & Republican parties for the US Presidency. An expert can tell you how a corporate bond works. An expert can tell you how far it is to the moon.

These are things the experts know. And you can rely on the accuracy of what they tell you. They are experts in their own fields, after all.

But there is no such thing as an infallible expert in the field of forecasting or prediction….

The future is essentially unknown – and to a large extent unknowable. We can only guess at it.

We can make informed and educated predictions and forecasts. But they are predictions and forecasts all the same – not certainties. And they are just as likely to go awry as come to fruition.

Experts get it wrong when making predictions. And we are getting it wrong if we allow ourselves to be led by the nose by experts who probably know little more than we do ourselves or, if they do know a lot more, still don’t know enough to call it right with any degree of certainty.

Nobody knows the future. Not for sure. And if there’s one lesson to take away from the events of the last week in America, it is this: don’t trust the experts when it comes to the future. Because they don’t know. They’re just very good at sounding as though they do. In reality they are as in the dark as the rest of us.

For sure, read what they say. Tune in and listen. It’s good fun….

But, in matters political, economic, financial and meteorological, don’t confuse an expert’s prediction with fact….

Don’t take confidence for certainty….

Don’t take it for granted that an expert sees the future better or more accurately than you do. Chances are he doesn’t. The world was reminded of that fact again last week.

That’s how it looks from here….

I’ll be back with more next Tuesday.

All the best,


Dave Gibson

Money Truths