Here’s Even More Proof the ‘Experts’ Aren’t Always Right

by Jason Unger

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I’m not going to spend the time linking back to posts where I argue that you shouldn’t listen to so-called ‘experts’ when it comes to investing or stock picking – I’ve talked about it so much that if you haven’t gotten the message yet, you’re on your own.

But yet again, there’s irrefutable proof that even the folks the financial media and institutions hold up as investing ‘experts’ can make some really bad calls.

As reported in the December 2011 issue of Money magazine, three so-called experts made horrible investing choices this past year.

Who: Bond guru Bill Gross

His call: Earlier this year Gross announced that he had dumped Treasuries out of Pimco Total Return (PTTRX), the world’s largest fixed-income fund. He believed yields would rise and prices fall once the Fed ended bond purchases (a.k.a. QE2).

What happened: Yields sank and prices rose as risk-averse investors sought the safety of government bonds. Pimco, among the top 13% of bond funds over 10 years, tumbled to the bottom 10% year to date.

Who: Wall Street analyst Meredith Whitney

Her call: In late 2010, Whitney, who had called the financial crisis, predicted on “60 Minutes” that loads of cities were at risk of defaulting on bond obligations worth hundreds of billions of dollars.

What happened Only $760 million worth of munis have defaulted so far in 2011, down from 2010’s $2.4 billion, per Standard & Poor’s. Meanwhile, munis have returned 8.1% vs. 6.8% for taxable bonds.

Who: Bruce Berkowitz, Morningstar’s U.S. stock fund manager of the decade

His call: Berkowitz was so confident that financials like Bank of America and Citigroup were on the road to recovery that he kept 75% of his Fairholme fund in them. (To be fair, MONEY was also bullish on financials.)

What happened Banks have been the year’s worst-performing sector. Fairholme is down 23.4%; its peers are down an average 1.6%.

Look, even Warren Buffett isn’t right all the time. Stick with investing in index funds. Don’t try and pick stocks.

No one can predict the future, and there’s no innate skill that the so-called financial experts have that makes them qualified to tell you what to do with your money. They might get lucky some of the time, but no one is lucky all of the time.

About the author: Jason is the author of Automatic Finances: 17 Days to Your Financial Freedom, a guide to automated money management. He started investing thanks to a free lunch, and after finding out how he was getting the short end of the stick, he sought out how to do it right. More »

{ 3 comments… read them below or add one }

Jason Unger December 23, 2011 at 10:29 am

Sorry if anyone saw the link to this but couldn’t read it because the site appeared to be down .. had a bad theme upgrade that messed up a few things!

Mogul December 28, 2011 at 8:06 pm

Anyone can make a bad call, though, right. Like anyone can strike out, or anyone can lose a hand of poker. It’s a numbers game. The thing that (should) identify them as experts is that they’re right more often than the non-experts are. Surely “lucky” is a bit strong?

Jason Unger December 30, 2011 at 1:13 pm

@Mogul

You can’t make a bad call if you aren’t making any calls. That’s why index fund investing is the best possible way for a person to get into the market.

More thoughts here.

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