I read a lot of finance stuff. Most of the time, it’s a lot of the usual advice and tips wrapped up in new clothing. Finance and investing don’t really change that much. The exception is taxes, which change at least a little bit every year due to new tax court decisions, and the adjustments made to many tax numbers automatically each year due inflation.
I keep reading about finance and investing both to keep my skills and knowledge sharp, and unfortunately, also to have some knowledge of whatever the latest finance and investing fads are. Investing for the long-term with a well diversified portfolio is the “eat less calories, burn more calories,” of finance. Everything else is a gimmick to achieve the same, while making is sound better (and easier).
Tony Robbins Merchants of Doom
I’m currently reading Tony Robbins’ Unshakeable. I like Robbins’ finance books. They repeat a lot of the sound financial advice that has been around for a while, often with a little more flair, and a lot more Tony. That is, Tony likes to name drop, which is fine, because he interviews some of the great minds for his books, but it’s always funny just how many of his meetings seem to be scheduled for just 30 minutes, but end up lasting 4 hours.
In this book, however, I have found something that I have been meaning to do FOREVER, and just never really got around to it.
You see, there are hundreds of financial analysts and pundits out there who get their credibility based on one, really great, perfectly timed prediction. Of course, what gets left out, is how many times they made predictions that were not all that great, and certainly not that well timed.
For example, there is an ad going around that says something like he called Amazon in 2006 as the way of proving how smart he is. The funny thing is, there have been 13 years since 2006. Has he many any predictions during that time? I’d want to know how his calls during the last 13 years went before I gave too much credence to getting that one thing right over a decade ago.
Robbins specifically calls out Dr. Nouriel Roubini who made his entire career off of correctly predicting the 2008 stock market crash, earning him the nickname Dr. Doom. As you can imagine, that gives (gave?) Roubini tons of credibility in the press, and with investors eager to hear more from the many who correctly predicted the biggest market crash since the internet bubble burst. I mean, that makes him amazing, right?
Right Once, Wrong How Many?
However, as Robbins points out on page 32 of Unshakeable, Roubini also predicted recessions in:
As you can see, Roubini wasn’t so much a great predictor of recessions as he was a consistent. If I tell you it’s going to rain tomorrow, sooner or later, I’ll be right too. I’ve called out former Goldman Sachs strategist Abbey Joseph Cohen for the same thing. She predicted a higher stock market every single year for over a decade and got credit for being, “right” whenever the markets happened to go up.
The problem with the world of finance is that while so-called gurus are allowed to unquestioningly toot their own horns about their success, they are never similarly held accountable for their failures. So, while Roubini gets the nickname Dr. Doom for being “right” about the 2008 stock market crash, the reality is that from 2004 to 2008, he was right just 20% of the time. Hardly Nostradamus.
I’ve always wanted to sit down and track ALL of the predictions of one of the analysts who made a “perfect call,” and is being currently hailed as brilliant so we could see that the perfect call, was really just one out of 10 (20?, 100?) that they got right.
Even better would be to sit down and document all of the calls made for an entire year, and then grade them over time. Keeping that document up to date so we could all see just how accurate that latest superstar stock analysts, or economist was.
All the Wrong Calls (Well Some of Them)
Tony Robbins (or probably a research assistant), has done something very similar, although his version only looks at how many predictions of doom were wrong.
Pages 32 through 34 of Unshakable should be required reading for all financial journalists, all financial planners and advisors, and all investors. On those three pages, Robbins details 33 front-page, big news, big name, predictions of market downturns between 2012 and 2014, when the market ran from 12,500 to 17,500. Listening to any one of them would have cost you a fortune. Some of the names on that page sell services or advice still today, probably by pointing out another time they were “right.”
These few pages, and these handful of stories are just a drop in the bucket of experts saying things that turn out to be wrong. I don’t mean to single out any of these analysts other than as an example that there is a widespread phenomenon in the world of financial writing and finance journalism of taking someone’s best day ever, and making it sound like it is their everyday.
Until we hold financial analysts properly accountable for their entire track record, and not just glorifying the highlights, you should definitely take any “guru” with a grain of salt.