Certainty should always be challenged….

Tuesday, 3rd September 2019

Certainty should always be challenged….

Some folk get their fix of excitement and entertainment from sport….

Others play Tour of Duty or Assassin’s Creed….

Others still prefer the titillation served up on TV shows like Love Island or Naked Attraction….

Here at MT we get our kicks (and laughs)  from the regular flow of mishaps and mayhem served up by the world of money….

  • Winning investment advice for a new century….

We probably don’t have to go all the way back to the beginning of the 21st century to find a starting point for this week’s dose of truth….

But what the hell….

I was reminded about this scenario over the weekend and it is fresh in my noggin. So, here goes….

Back in August 2000 – with a brand-new untapped century stretching out in front of it – Fortune magazine attempted to hit the ground running by providing its readership with what it no doubt hoped would be some winning investment advice….

The piece was entitled 10 stocks to last the decade….

The idea was that if readers bought these stocks and held them over the next 10-years then they would surely do well….

The stocks chosen by the Fortune team were Broadcom; Charles Schwab; Enron; Genentech; Morgan Stanley; Nokia; Nortel; Oracle; Univision; and Viacom….

  • A chance for the experts to shine….

No doubt plenty of time and resources were invested in the stock-selection process. You can picture the editorial meetings – all the furrowed brows, all the sage nodding; all the thoughtful chin-stroking….

After all, Fortune magazine bills itself as a serious publication put together by serious people for serious readers. This is a serious business, ladies and gentlemen. Make no mistake….

These guys are experts no less – so experienced, so well-connected, so in-touch with the game and so deeply immersed in their subject that their knowledge stretches way beyond that  of mere mortals  like you and I….

So too their predictive skills. In the absence of a crystal ball or a clairvoyant, these guys are the next best option – or so they would have you believe….

Tapping into some deep well of ancient instinct this raggle-taggle band of financial hacks and prognosticators peer far into the distance to divine and decode the secrets of the future….

This was an opportunity to showcase those rare talents in front of an international audience. It was a chance to show the opposition that the team down at Fortune magazine HQ was an outfit to be reckoned with….

This was a chance to shine. A chance to add a proper humdinger to the highlight reel. Reputations were at stake. You can be sure these guys wouldn’t just be throwing darts. But, as it turned out, they might as well have been….

  • Dart throwers couldn’t have done it any worse….

We wonder who would read a Fortune magazine (or any other magazine) article and then follow the advice it contains to the letter….

And, if any did, we wonder if any had the faith (or the foolhardiness) to hang on to the stocks for the entire decade before getting out….

But we will assume that someone did. And we will assume they canceled their subscription to Fortune when the day of reckoning finally dawned in 2010….

The table below depicts the performance of each stock advised in the article over the 10-year holding period….

Fortune Magazine

Nine of the 10 stocks advised had lost money….

Six of the 10 had lost more than 50% of their value….

Two of the companies whose stock had been advised had gone out of business altogether and were worth zero….

In total, investors who took Fortune magazine’s advice and followed it to the letter lost more than 70% of their capital – almost three times worse than they would have done had they just bought and held the S&P 500 in its entirety over the same period…

  • The truth about expertise – and certainty….

The moral of our story is not new – but it is clear, straightforward and it bears frequent repetition:  expertise is over-rated and frequently illusory

This is especially the case in the world of money….

Very many financial commentators, economists, investment experts, analysts and brokers know very little about what TODAY holds, let alone what might play out over a period of years….

But readers and investors and editors and producers want certainty because certainty is what sells….

This ‘might’ go up does not sell as well as this ‘will’ go up. ‘I’m not sure’ is not as strong a statement or sentiment as ‘I’m in no doubt whatsoever’. And who wants to read or hear what someone doesn’t know for sure?

So, a never-ending, ever-growing line of ‘experts’ continue to try to provide certainty despite – whether or not they realize it – not having a cat in hell’s chance of actually providing it….

Sometimes these folk get lucky. A broken clock tells the right time twice a day. But for the main part, nobody knows very much at all about the future or what it holds. Not for certain….

Certainty is not the widely or freely available commodity that newspapers, magazines, newsletters, columns, TV programmes, podcasts and twitter accounts would lead you to believe….

In reality, certainty is as rare as hen’s teeth. Which is why I always sit up and take notice when some financial, investment or economic ‘expert’ claims to speak with ‘certainty’ about the future….

He might know what he is talking about. It is always possible. But the chances are he doesn’t. Chances are he is fooling himself or trying to fool you….

At the very least the expert’s belief in his/her own certainty is worth challenging rather than swallowing whole and going to market with….

  • Belief is not certainty….

Peter Navarro was at it last week….

The economist who serves both as President Trump’s assistant and as his Director of Trade and Manufacturing policy was speaking on ABC television….

He told viewers: ‘I can tell you with certainty…. we’re going to have a strong economy through 2020 and beyond with a bull market…’

He might believe what he is saying. What he is saying might turn out to be true….

But a wide gulf exists between now and then – between forecast and fulfilment. It is  a gulf  within which anything and everything could happen….

Navarro doesn’t know what the future holds or the effects one future event might have on another. He has no idea what is going to happen. No idea at all. He can only guess or make assumptions based on what he believes might happen….

And, as Mark Twain said, it is the things you believe you know but don’t that ultimately get you into trouble….

In short Navarro is doing no more than telling you what he believes, or he is trading on his ‘expert’ status to convince you of the same….

Belief – however fervent or however honestly-held – is not  the same thing as certainty though. And investors would be well advised not act on the former as though it were the latter. It pays to dig deeper and distinguish between the two….

Experts who tell you they are ‘certain’ about markets or the economy are not to be trusted. That much at least I am certain of….

That’s the truth of it as we see it….

All the best,

Dave Gibson

Money Truths