Investment experts and predictions

Investment experts who are making predictions about investing, can be found at many places. Most of these predictions are based on experience or theories of these experts. In other articles, there is already written that predictions should never be taken for granted and being the whole (possible) truth. But how can you identify an investment expert that is reliable, and how can you see what is a good prediction and what is not.

Remain critical on investment experts

A lot of different investment experts exist. Some investment experts use their investment experience as the basis for their predictions, some use one or more theories about investing. Other investment experts trust only on their gut feeling to make a prediction. But how can you identify the trustworthy investment expert, or how can you identify the bad investment expert?

A good investment expert at least has personal experience in investing. Like all experts, an investment expert must have executed his expertise in practice. This experience, or know-how, contains (amongst others: knowledge) the faults made by him- or herself and the faults of others.

A reliable investment expert can, besides the know-how, use theories about investing (the know-what). These theories should be tested in real life situations. This is where the know-what is linked to the know-how of the investment expert. So called experts that only use theories that are not tested in real life, are not really trustworthy.

Besides the combination of the experience and a theory about investing, an investment expert needs to stay focused on his own expertise. The expertise is for an investment expert off course investing. But the number of investment products and markets in which can be invested, investing itself is an expertise that is too broad.

A good and reliable investment expert can be identified by the following criteria:

  • Having and using real life experience (know-how)
  • Having and using a theory about investing that has been tested in real life (know-what)
  • Keeping to its own expertise.

Predictions of investment experts

Now that we know how to identify a good and reliable investment expert, we can take a look at the predictions of these experts. What is a good prediction of an investment expert?

I already said that an investment expert should only make predictions about his own expertise. I should add to this that an investment expert should also take into account external influences on his prediction. Most products and markets are influenced by external factors. This is why a in good prediction these external elements are considered while the prediction is being made.

Another element of a prediction is the social element. Most experts are influenced by other investment experts while making the predictions. The fear of being the only one with a wrong prediction is guiding an investment expert. Being the only one with a wrong prediction is more important than being the only one with a right prediction.

When an investment expert is identified as good and reliable, the content of the predictions itself is not the only important factor any more. The procedure or the content should not be questioned any more, but the certainty of the prediction are important (or more precise, the past predictions). A prediction of an investment expert, who has usually a low error rate, can be relied better on than a prediction of an expert who has a higher error rate.

Most predictions that are made, are using a standard situation as the default. A normal distribution (the so called bell curve) is used for making the prediction. But most situations are not standard, because most of the time, there is no equilibrium.

A market is in one of the three different equilibriums. These different kinds of equilibriums should be used by investment experts when making a prediction. Markets with an unstable equilibrium, are harder to predict than markets which are in chaos. And markets with an stable equilibrium are easier to predict than markets which are in chaos. These phases of equilibrium can be translated in an easy way to the risk you take when acting upon a prediction. So, determining the equilibrium means determining the risk of a prediction.

Criteria for a good prediction are:

  • The prediction is made by a good and reliable investment expert.
  • External influences are taken into account while making the prediction.
  • The prediction is made independently, no negative influences of other investment experts.
  • The prediction is made by an investment expert with a low error rate.
  • The type of equilibrium is known to the investment expert. This means the risk of the prediction has been determined by the investment expert.