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Be wary of prophets

“Experts” are often salespeople with an agenda

By Andró Griessel

02/07/2022

In times of uncertainty, we all look for someone to point us in the right direction.  It is only human.

The problem in the financial world is that there are often individuals who make statements with such conviction that it feels like the command of an army sergeant. For those who are uncertain about the way forward, or who do not have the necessary knowledge about the subject, this is often a call to action with unintended and dire consequences.

It has been a rough couple of months in the financial markets and many investors are looking for a prophet to predict the path ahead.

I quote snippets from the last 2 years saved in my “things-that-are-worth-reviewing-later” file, to illustrate that you should not follow so-called experts blindly. You should follow a thorough process, supported by robust research and risk management instead of reacting to emotionally charged tweets or articles.

The quotes are in no specific order and names are omitted since the intention of this article is not to name and shame anyone.

What I want to illustrate is that just because someone has a platform to communicate with the public (present company included), does not mean that their advice is sound or even sensible.

*17 March 2020, a renowned South African stockbroker/share trader on Twitter:

“I keep getting calls from people who want to buy Sasol shares. I’d rather put my *^@* in a crocodile’s mouth”.

Since then, Sasol’s price increased by more than 900%.

*1 April 2020, a renowned South African column author and “investment strategist”:

“Even at R18/USD local investors still need to load up on the USD. The worst is still to come. R22 against the dollar at year-end.”

Since this tweet, dollar cash has been the weakest asset class (except for offshore bonds) with a return of -11.65% per year.

The rand traded at R14.66 by the end of 2020 instead of the predicted R22 per dollar.

*2 April 2020, an American investment advisor on Twitter:

“Covid-19 recession will be deeper than the great financial crisis. Those that are expecting a V-shaped recovery, are making a big mistake.”

It happened to be a V-shaped recovery, or a hockey stick-shaped recovery to be exact. Since this tweet, the American market (even after recent sharp declines) is 34% higher in rand and the JSE is higher by 67%.

If you were hiding in dollar cash, you would have lost 13.5% of your money.

*8 June 2020, a renowned South African column author and “investment strategist”:

He tweets a comparison in performance between an offshore fund and a local fund for the previous 5 years, where the offshore fund performed a lot better than the South African fund as proof that you should rather invest offshore.

Since this tweet (2 years ago), the specific offshore fund delivered a total return of 4% (about 2% per year), while the local fund delivered 57% (about 25% per year).

*8 January 2022: An article in Analytics Insight, a platform that reaches 5 million people, publishes an article with the following headline:

“Top 10 cryptocurrencies you will regret not buying in Jan 2022”

See the performance of these 10 cryptocurrencies below:

*21 May 2021: An online article in the USA states:

“Bitcoin price to hit $307k by October (2021), then $12.5 million by 2031”

Instead of $307 000, the price of bitcoin dropped to $61 000 by the end of October 2021. It currently trades at around $20 000.

Keep this in mind

I can go on and on, but I think the point is clear. If you cannot rely on so-called expert opinions, how do you decide what to do?

As usual, it is easier to tell you what NOT to do than what you should do, but I will try, nevertheless. The next time that you feel a call to action after you have read an article or tweet, try to remember the following:

Emotions such as excitement, frustration, fear, greed, dissatisfaction, disappointment and even rage are all signs that you are only human. However, these are emotions that will trip you up when it comes to rational decision-making (especially about investments). When it comes to investments, you should stay away from people who display any of these in large dosages…yourself included.

When you come across advice that feels to you like a call to action, make sure you understand who the writer is and consider whether he/she will benefit in any way by selling you their point of view.

If someone is the chief executive of a company that markets bitcoin, his opinion about what is going to happen to the price of bitcoin needs to be taken with more than a pinch of salt. It doesn’t mean his arguments are not valid, just that you need to be on your guard.

You cannot know for sure what you cannot know for certain. Stay clear of anyone who talks about the future with great certainty. You should be skeptical about their opinion.

The first step to becoming a successful investor is to let go of the illusion that you can avoid declines in your portfolio.

Secondly, if you can remind yourself that returns in financial markets are not dished up in a predictable way, you will develop the endurance to sit out long winters (like what we had to endure the last 6 or 7 years).

The third step, which is what this article is about, is to get rid of the idea that there is an expert with a crystal ball in hand. These “experts” are often salespeople with an agenda.

Step 4 is to follow a thorough portfolio construction process (unfortunately easier said than done) and step 5 is to sit tight and simply trust the process. Most people buy what performed well in the recent past and hope for the best. It is not a strategy with a very big chance of success.

Andró Griessel is a certified financial planner and managing director at Woodland Wealth (previously known as ProVérte Wealth & Risk Management). Contact him at info@woodlandwealth.co.za.

Although all possible care was taken in the drafting of this document, the factual correctness of the information contained herein cannot be guaranteed. This document does not constitute advice and anyone planning on taking any financial action based on this document, is strongly advised to first consult with their personal financial adviser. Woodland Wealth is an authorised financial service provider with FSP no. 5966.

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