Why expert analysts aren’t really experts

With the Super Bowl coming up and everyone and their dog (actually ape, manatee and bears) making predictions, I thought it was a good time to reprint this article I wrote a couple of years ago. Don’t rely on any predictions you hear. No matter how correct the speaker was last time…..

Many so called expert forecasters, in varied fields, from financial markets to sports gambling often secure their reputations as accurate prognosticators, by publicly making dramatic predictions which come true. “The market is due for a crash”, “Barrels of oil will double in price”, “The Giants will beat the undefeated Patriots!”.  And then they have the public’s ear. People hang on their every word, waiting for their next nugget of wisdom.

But for the most part, I believe the correct predictions these individuals make are due to luck, rather than some special expertise or magical forecasting methodologies that they use. And if you do believe them, any money you invest (or bet) on their future predictions you do so at your own peril.

Here are some examples:
At the end of the 2010 NFL season I (with the help of several online websites) tracked games that 17 “experts” had picked against the spread. The best one had picked correctly an impressive 59.4% of the time.  The worst one was just over 42%.   Their overall average was 48.7%, and only 8 of 17 had correctly picked more than 50% of the games correctly.  In other words, if you were betting on these games, you would have done better by simply flipping a coin every single time, than by listening to the combined expertise of these analysts.

Ok, this is sports. A game of chance really where a lucky bounce or blown call can make the difference between winning and losing. What about in the real world?

Surely that guy you trust to manage your stock portfolio has years of training and experience and advanced numbers he can look at to help you maximize your investment return, right?  Well, maybe not. (To be clear, hopefully he does have the years of training and experience and is looking at information that might not be easily available to the average person – but that just may not help).

The fact is that randomly selected portfolio of stocks, almost always post better returns than a tracker fund.  A famous Princeton professor once said “A blindfolded monkey throwing darts at a newspaper’s financial pages could select a portfolio that would do just as well as one carefully selected by experts.”  I was sceptical too.  And this professor was subsequently proved wrong.  Monkeys almost always do a much better job than the experts. I’m not making this shit up.  Read it yourself over at Forbes.  Or this article that concludes “If you’re paying someone to do the job for you, you’re likely not even beating the indexes they’re benchmarking against — and then you have to pay them fees.”  If you don’t believe this, feel free to follow the advice in books such as this one, and let me know how many millions you make in the stock market.  And it’s not just stocks. They are also better than lawyers at predicting case outcomes. And lots of other things too.  And a lot cheaper than paying an expert.

You want some fame and notoriety?  Make some crazy prediction, and publish it somewhere. If it’s wrong not many people will notice it.  But if it comes true, you can point to it and get yourself a pretty big following of sheep admirers.  The nice thing is you can be wrong multiple times, and people will only remember the right one.  Last year I predicted almost the exact final score of the Super Bowl (Saints 31-17 over Colts) and won a twitter online contest against hundreds (maybe thousands?) of entrants.  A few of my friends thought I was some sort of genius.  Nope, just a lucky guess. I used the same “proprietary advanced statistical scientific methodology” to predict that the Colorado Rockies would be in the World Series, just a few short months before they ended up in last place.  I just knew enough not to re-tweet that one too many times 🙂

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