Market Overview

Why Financial Experts Often Have Worse Market Judgement Than Retail Investors

Why Financial Experts Often Have Worse Market Judgement Than Retail Investors

In a new blog post, A Wealth of Common Sense’s Ben Carlson discussed the pitfalls of relying on market experts for trading ideas.

Confusing knowledge with judgment can be a costly mistake, he explained. “People assume [Wall Street] professionals should have everything under control because this is what they do for a living, but it just opens you up to a whole host of different biases when you’re dealing with this stuff on a daily basis.”

In fact, investment professionals sometimes let overconfidence cloud their judgment, a pitfall than many skeptical retail investors can easily avoid.

“As a society we probably have a problem with hero worship as we place way too much faith in experts and celebrities.”

A recent survey of institutional hedge fund investors found that an incredible 99 percent of those surveyed anticipated annual returns of at least 9.0 percent, and two-thirds (67 percent) expected annual returns of 12 percent or higher.

Carlson calls these investors delusional.

Related Link: Once Again, You're Better Off Letting A Monkey Pick Your Portfolio Than Investing In A Hedge Fund In 2016 

Prior to 2015, hedge funds had underperformed the S&P 500 for seven consecutive years. According to the HFRX Global Hedge Fund Index, hedge funds are on pace to lag the S&P 500 again this year for the eighth time in the past nine years.

“Everyone has a lesser version of themselves that they’re constantly battling with — even the so-called experts,” Carlson concluded.

So far this year, the SPDR S&P 500 ETF Trust (NYSE: SPY) is up 3.1 percent while the hedge fund-tracking Global X Funds (NYSE: GURU) is down 2.2 percent.

Disclosure: The author holds no position in the stocks mentioned.


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