It is not often appreciated by ordinary investors, but there is a cozy relationship between the media and the brokerage industry. They both want you to believe that certain individuals have uncanny powers of accurately predicting the future.  Just flick on CNBC and you can listen to a host of ‘experts’ telling you what is going to happen next, economically speaking, and how to position your portfolio accordingly.  They will even give you their ‘hot’ picks.  What is not known by much of the ordinary investor community is that these folks pay handsomely for this precious TV face time.

For stock analysts, promoting the illusion of their all knowing power is helpful because it justifies their fees and keeps people trading. For the media, the myth that certain remarkable individuals can reliably forecast stock prices is helpful because it provides endless “gee whiz” stories to keep the ads running.  When you look at it all collectively, it truly is a codependent, self-serving arrangement.

Every 12 months, many newspapers publish lots of colorful tables and profiles of that year’s “guru” analysts, interwoven of course with paid advertisements helpfully placed by the winning institutions.

Never mentioned is what the tables showed last year or the year before — because to do so would be to recognize that the accuracy record of the forecasters rarely extends beyond a 12-month period.

No matter how smart individual stock analysts may be, no matter how much they know about the companies and sectors they follow, no matter how many visits they make to companies, they are in the end hostage to unforeseen events:
The government changes the rules around telecommunications, global steel prices collapse, the discovery of new technology renders a previously innovative IT solution obsolete, a breakdown in an obscure area of the mortgage market unleashes a global firestorm in the banking industry, etc…

Making investment forecasts is a haphazard business, and an unnecessary one. Good investment management is not about making forecasts or being on first name terms with the CEOs of listed companies. Good investment management is about understanding and managing risk.

It is about building diverse portfolios around risk factors that have a long-term relationship to return. It is about being mindful of costs and taxes — two things within the control of the investor.

Most of all, it is about recognizing what we don’t know and managing for that. The bad news is none of us knows what the future will hold. The good news is we don’t need to in order to have a successful investment experience.  Leave your investment strategy to us.

Mark Collard authored the above article.

Mark Collard is a Partner in the investment management firm, Odyssey Advisors, LLC. Collard received a BS in Business Finance and Accounting from Saint Vincent College and an Executive MBA from the State University of New York at Buffalo.