Financial Experts: How Much Should We Trust Them?

One of the things I subscribe to in my Google Reader is the news feed for Seeking Alpha which is basically an aggregator of articles written by so-called financial or investment experts.  There are, on average, over 300 articles published a day. on financial topics, mainly focused on the stock market  I rarely read any articles, but just scan through the titles of the articles.   If one really catches my interest, I’ll read the first couple of paragraphs which is available within the feed.

Just doing so often gives me a pretty good feel of where sentiment lies in terms of the market.

The people that write these articles are often people dedicated to trying to understand the market, and many make understanding and writing about the Dow, NASDAQ, S&P and other markets their full time job.  So you’d probably be inclined to put a lot of trust into them, right?

Not so fast.

Two things have been apparent when reading through the headlines on ‘expert’ sentiment:

  1. Most believe the markets are in for a correction – Probably 80% or more of the headlines tied to overall market sentiment have experts proclaiming that the market rally we’ve seen over the past few months is due to end.  Few predict a minor correction, some predict leveling off, but many seem to think a major correction is in order sometime over the next twelve months. Whatever level they believe, most do seem to think that we’re headed down.
  2. Apple (AAPL) is headed for the stars – Apple has recently exploded, hitting over $500 per share and now has a market cap over $500 billion dollars.  That’s half a trillion dollars and is staggering.  Still, 90% or more of ‘experts’ who write about Apple (and most of them are these days) seem to think it’s still headed up.  I’ve seen predictions of $650 by year end, $800 within 12 months, and even $1,000 per share within the next 24 months.

Granted, I’m no expert, but when I stand back and take a look at these, both of these things happening simultaneously don’t seem possible.  If a major correction (10% or more) were to take place, Apple may not go down, but I would expect the share price to flatten. Plus, if people start losing a good chunk of money, this will likely slow down the economy as well as discretionary spending.  Will people stop buying iPhones and leave lines for iPad 3’s empty?  Of course not, but if even 20% of their customers decide to hold onto their current device for another year longer than they would have because of their portfolios hitting the skids, the 20% quarter-over-quarter sales increases would slow down.

One thing I know is right, and I’m no expert, is that investors don’t like when things slow down.

I guess another way to say it is that I can’t see Apple stock sitting in a vacuum when it comes to their expected growth.  While their stock likely isn’t directly correlated to the market movements, there has to be some correlation.

But, not if you believe the ‘experts’ that call for Armageddon with the market, yet believe that Apple will hit a trillion in market share.

So, where am I going with this?

Before putting all of your faith in experts who make it their career to understand the market, understand that they’re riding the same waves of emotions as everyday investors who don’t know any better.  They don’t take emotion out of their decisions and recommendations.  They may temper their emotions, but they’re still there.

Realize that the  recommendations and guidance are words on paper or a computer screen.  Those words are put there by human beings.  Human beings who can get caught up in a bubble or who can follow in-step with others for fear of being labeled a hack because they’re going against common belief.  Human beings who can and will fail to look at the big picture, even though that’s what they’re supposed to be doing.

Don’t follow blindly.  It’s OK to look at what others are saying, but take a minute to look at what they’re really saying.  You might find that they’re saying two different things at the same time.  That might just open your eyes to realize that these experts….they may have access to more information and know a lot more technical information, but realize that they can’t 100% predict what’s going to happen next any more than a fortuneteller could.

Plan your moves accordingly.  Do your own research.  Make sure what you do passes your own ‘sniff test’ before making a move.  Understand the implications one way or another.

In other words, read what the experts have to say.  But don’t let them make your decisions for you.

How much faith do you put in financial experts?  Do you ever see market experts or even your own financial advisers providing contradicting advice?  Where do you think the market (and Apple) is going?