Blow up your TV; throw away your paper – John Prine, Spanish Pipedream

Thanks to Nassim Taleb for coining the valuable word “postdictors” in his latest book, Anti-Fragile. This is one of the most useful words in explaining why we should all turn off our TVs and throw away our papers when the financial and political pundits show up. Listening to them is a sure way to be a loser most of the time. Do you often see them come on and show a moment of honesty? (For instance, “I have to admit I never saw the financial crisis of 2008 coming”). Nah, they all saw it coming after it happened!

If you followed Apple’s stock run the past few weeks, you might notice that a few “analysts” increased their target price to $500 a share or more. That is after Apple stock surged to $500 a share. On the way down, they lowered their targets after Apple fell and now they raise it after it rises. Is that a “target” price as opposed to a fait accompli? Not in my book.

These pundits are best described by another wonderful term that I learned from Barry Ritholz- “articulate incompetents”. They are very intelligent sounding and very certain in their delivery. They are EXPERTS! How can things go wrong listening to experts? They will be back on TV tomorrow or next week with new ideas for you.

One of their themes these days is that you should get out of emerging market stocks and bonds (after they have fallen precipitously of course!). The expected return on investment of emerging markets stocks and bonds is very attractive since they have become so cheap compared to other investments. They may go down more in the short term (I am not a skilled predictor or postdictor). However, to go sell these investments now and buy domestic stocks is a sucker’s move. Domestic stocks have done well and are likely to have muted returns after their impressive performance. Emerging market stocks and bonds have the potential to produce above average returns going forward. If and when they do that, I am sure there will be no shortage of postdictors telling you why your money should be in emerging markets. Listen to enough pundits and you can reduce the returns on your investment portfolio a great deal.

By Ted Schwartz  CFP©