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Following the Experts

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Another day, another example of experts getting it wrong.

Today it involves the economic forecast for Hong Kong. 

A Bloomberg article discusses the risk of a recession in Hong Kong [4].

The Experts Get It Wrong (Again)

While the fact that Hong Kong is likely to endure a recession is both interesting and bad economic news, the main takeaway for me was the quality of the forecasts.

Of nine economists in a Bloomberg News survey, Lai came closest to predicting a 0.5 percent contraction in the city’s economy in the second quarter. Only two of the analysts expected gross domestic product to decline from the previous three months.

Only 22% of the economists predicted a decline in GDP. Not a strong result.

By Following Their Conclusions, You Would Also Be Wrong

If you followed the vast majority of the experts, you would have expected flat to increased GDP from the prior quarter. That would have guided your investment or purchasing decisions to some extent.

And you would have been wrong.

Relying on experts for your investment inputs or recommendations is a questionable proposition.

Regardless of who the expert is, do not take his or her statements as infallible. And just because a majority of experts take the same stance does not always means that their conclusions are correct.

Adding further confusion is the fact that only 2 of the 9 economists got it right. Are they geniuses who should be followed in future? Or did they just get lucky in their forecasts for this period? Or was their analysis so wrong (they did differ from the majority of their peers in examining the same economic data) that they got the correct answer?

I have no idea. But I would watch Kevin Lai for another few quarters before believing him to be Hong Kong’s most astute economist. Consistency over the long-term is the benchmark against which experts should be assessed.

Investment Advice for Today

Never blindly rely on someone’s advice no matter what his or her credentials state.

Always maintain a healthy degree of scepticism in the prognostications of others before following their recommendations. Look for experts who have been consistently successful over the long haul and throughout the different investment and economic cycles.

And, of course, skip the experts altogether and take a passive approach to investing.