Navigating Market Storms and Wall Street Hype

Investing, Investing Strategy
navigating-market-storms-and-wall-street-hype

By Jeff Bogart

Learn more about Jeff on NerdWallet’s Ask An Advisor

When it comes to making predictions, everyone’s an expert. Apparently you just have to sound like you know what you’re talking about, and you’re considered credible.

This is especially true in the financial industry, where there tends to be a lot of machismo, particularly during times of market volatility. It seems like everyone has an opinion about where you should invest your money. But smart investors know to steer clear of the noise and stick to a disciplined and diversified strategy.

Athlete picks

Given the onslaught of “expert” advice, it came as no surprise (well, maybe a bit) when I saw that Jose Canseco was tweeting about negative interest rates and gold a few weeks ago. You may recall the Oakland A’s slugger with the Popeye-sized biceps from the 1990s. Yes, that Jose Canseco. He was one of the “Bash Brothers,” along with Mark McGwire. Now he’s hot for gold.

On Feb. 12, he tweeted, “not a surprise but everyone should be in gold.” Minutes later, he added, “$1500+ by Memorial day.” Mind you, this is coming from the same guy who famously had a ball bounce off his head and over the wall in right field at Cleveland Municipal Stadium, resulting in a home run for the opponent. Despite his lack of professional investing experience, he’s reacting like so many other “experts” to the recent turmoil in the financial markets. I may find his tweets amusing, but I’m certainly not piling my clients into the glittering metal.

Beating the pros

Canseco’s recent musings brought to mind Orlando, the “ginger feline” who made news back in 2012 by beating a team of investment professionals and a group of students in a yearlong stock-picking experiment. The cat picked his stocks by throwing a toy mouse at a grid of publicly traded companies. His human opponents used methods involving “research” and technical analysis. At the end of the year, Orlando’s picks had returned nearly 11% while the pros had gained just 3.5%. In comparison, the Standard & Poor’s 500-stock index rose 13% that same year. They all would have been better off just buying an S&P index fund.

More recently, MarketWatch reported that Wall Street’s most-hyped stocks lost big in 2015. In fact, they did worse than the stocks that the same highly trained, highly paid analysts said not to buy. Apparently, though, bad forecasting is customary among Wall Street analysts. In the article, Brett Arends reports, “Each year since 2008, analyst data supplied by Thomson Reuters and stock performance data from FactSet show that analysts’ bottom-10 stocks on average have beaten their top-10 counterparts by 10 percentage points.”

For fans of professor Eugene Fama, a Nobel laureate in economics, this comes as no surprise. He has long maintained that even when professional money managers do outperform their comparative indexes, luck plays a huge role in their superior performance. “I’d compare stock pickers to astrologers, but I don’t want to bad-mouth the astrologers,” Fama has been quoted as saying.

Stay diversified

Since the beginning of the year, we’ve seen a lot of turbulence in the markets and anxiety among investors. However, the best way that I know of to combat the fear of a down market is to look back in history. The stock market has so far been an upward-reaching entity. Yes, it occasionally takes a break, temporarily declining or hovering at lower elevations. But over the long run we have seen, and can expect to see, growth.

Yet, as our “experts” repeatedly demonstrate, it’s impossible to know which stocks will do best next week, next month or next year. That’s why my advice is always the same: Stay disciplined, goal-oriented and diversified with your investment strategy. It’s the surest way to navigate market storms, Wall Street hype and “juiced” home run hitters.

Jeff Bogart is the owner of Sila Wealth Advisory in Mayfield Heights, Ohio.


Image via iStock.