Monday, 24 December, 2012

Don't Listen to Experts - Especially Now

Don't Listen to Experts - Especially Now

OK, Let me be even more specific:

Don't listen to and follow "Investment Advice", "Stock Ideas", "Stock Tips", "Suggestions for 2013", etc. given by "Experts", "Investment Gurus", "Fund Managers", etc. - Especially now.

You may wonder why I say so, knowing fully well that we all do keep quoting experts, and that the experts have their reputation at stake.

Here are a few interesting reasons:

  • First and foremost, this happens to be the season for "Experts". You'll find them all over the place. In every TV news channel. In every business newspaper or magazine. In the business section of every magazine or newspaper. In every second website that has anything to do with the world of finance. After all, we're fast approaching the new year. And more importantly, we are pretty close to two landmark levels on the NIFTY - One is the psychologically important level of 6000. Second, we are close to the "All-time-high" levels. When there is such a plethora of demand for "Experts", obviously, a lot of "not-so-good" "Experts" will also end up proffering their suggestions and recommendations. That can't be good for your financial health.

  • Secondly, all experts will try to come up with a "new and unique" stock idea. At last count, I have heard/read at least 70 "experts" thus far in the past week alone. Even after eliminating the rare overlaps among different experts, you'll end up having a virtual laundry list of nothing less than a couple of hundred stocks to consider. I'm yet to come across any individual who can or needs to deploy some funds in each of them. And those who can and need to own 200 stocks are probably belonging to such a "high networth" category, that they'll probably be either experts in their own right or they'll have hired their own personal expert for handling their investments.

  • Thirdly, assuming that a particular expert has a "silver bullet investment idea" which is going to be a real multibagger, he / she is not going to go public with that name - It will make far better sense for him / her to pump in their own money (along with money borrowed from friends, family and financiers) into that stock if it is such a surefire bet!

  • Fourthly, even assuming that the expert is going to come up with such an idea, it is going to be based on a certain set of assumptions about the time horizon of investment, likely performance parameters of the company, risk factors applicable, profit targets, risk profile of the investor for whom the idea is being suggested, etc. It is indeed rare to find an investor for whom such a stock idea will be perfectly applicable.

  • Fifthly, the "Expert" may periodically change his opinion about the company from time to time based on the change in circumstances of the company or the economy or the markets or his own risk profile. You may not be aware of such changes in his opinion.

  • Even if he's committed enough to keep updating his modified opinions from time to time, he may be willing to "cut his losses" based on his risk profile in case of need. Are you?

I guess that these reasons are good enough for you to take all "Expert Opinions" with a pinch of salt at least till the new year!

Merry Christmas to all my blog readers!



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