I was recently justly rebuked after I made a disparaging comment about financial advisors as a profession.
I said something like, “what could a financial advisor know about asset allocation?” My friend answered, “regardless whether they can find an optimal asset allocation for a client, the advisors add value: they get people, who might otherwise be keeping their money under the mattress, to invest, which benefits both the clients and the entire economy”.
A stock broker called me once when I was a graduate student (it was the 90’s, remember the cold-calling brokers)? I have invested a small sum into a mutual fund and then proceeded to buy and (unfortunately) sell some stocks.
My brokers were so incompetent and the commissions were egregious that I somehow avoided making money in the subsequent 3 years of booming markets.
This first broker did me a great service. He got me involved in the market and making mistakes while it was cheap.
When, as a freshly-minted Math Ph.D., I took my first Wall Street job in 1997, I had at least some smattering of experience.
So let’s evaluate investment advice not based on whether it is correct, but on whether it has value to us.
History shows economists’ forecasts to be of little value, but it does not say that the economists themselves are of no value. As a macro trader, I form my own directional views, but I rely on economic research to understand the paradigms of growth, employment, inflation, trade balance and so on.
Similarly, a stock analyst might write “XYZ company is rolling out a new product, I recommend buying”. You might disagree – this product could a disaster – but at least they alerted you to the timing of the roll-out.
After I post on twitter that I am buying or selling bonds or Euro, you will often see the market moving against my position right away. But it says nothing about how my overall portfolio is performing or what my long term strategy is.
The jury is out on everyone who is active in the investment business. I could claim that I am the best trader in the world and then blow up the next day.
All I can say is that I am “for real”: I have years of experience, I have traded many different products in decent size, and I have made some money.
So when listening to an advice or opinion, don’t just focus on whether the person offering it is correct this time. Try to decide if this person is “for real” and (and even if they are not!) whether there is something useful in what they are saying.
Besides mere information, you might be acquiring understanding of other people’s process and strategy, or even simply getting engaged.