Ignore the Gurus and Educate Your Clients
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God help us! It’s guru season again. Every year we drown in predictions from the so-called gurus about how the markets and the economy will perform in the coming year. Their arrival always coincides with the publication of a slew of articles highlighting how poorly the gurus foretold events in the previous year.
Yes, each year there are a handful of gurus that get it right. But we should expect that. Paul the Octopus correctly “predicted” the outcomes of all seven of Germany’s 2010 World Cup matches and the eventual winner – Spain. His overall record was 12 correct predictions out of 14. Pretty good for an octopus. How many “legendary” investment gurus have records that good?
Before you answer that question, let’s agree that making the same prediction year after year and then finally getting it right does not constitute prescience. It may be a measure of perseverance or pugnacity, but it does not show perspicacity.
Granted, guru prognostications are fun to read. They get your juices flowing and your wheels spinning. Perhaps, knowing what this or that guru said makes you a more interesting conversationalist. But their musings are of little value in developing an investment strategy.
It would take a very long time to read all the books, articles, and academic papers that document the utter failure of gurus to accurately predict the future. One of my favorites is an article by Wim Antoons who studied 6,582 forecasts made by 68 market timing gurus. He found that “after transaction costs, no single market timer was able to make money.”