Anyone who can make simple thing complex is considered as Investment Guru. The financial media is in the business of broadcasting news, advice, expert opinions etc. It is easy to get swayed by all that advice. But all the advice is not necessarily good for your portfolio or goals. You have to evaluate the advice and sift the unnecessary advice from the useful advice for your financial portfolio.
Avoid following forecasts of Investment Guru
Experts forecast performance of assets. Why do we listen to them? It is mainly because we think we do not understand markets and we make no serious attempt to learn. We are also scared to make decisions on our own when it comes to investments. Experts are not always correct when it comes to prediction of market performance. CXO Advisory group studied 6,582 predictions from 68 different investment guru during the period 1998-2012. The average accuracy rate was just 47%!
It is better for you to understand that nobody understands markets – decide on your investments based on your financial needs. But we are not talking about Do It Yourself.
Avoid advice not suited to your investment needs
Gold might be the favorite of one Investment guru – other may bet on real estate. You cannot follow their advise blindly. Check your investment portfolio. Do you need to invest in gold or real estate? If you follow the investment gurus without looking at your investment needs, your asset allocation will be imbalanced. The advice might be correct but it may not suit your investment time frame or risk profile. It is better to avoid such advice.
Is the expert’s view objective?
Investment guru will want to be objective in his advice. But is he? They might consciously or unconsciously be motivated by other factors. It could be self-interest, confirmation bias or fear of being contrary to what other market experts are saying. Such biased advice is not in your best interests. So if you follow an investment guru, do so, but critically analyse the advice and check if it is suitable for you.
Forecast is one-sided
Some experts provide an analysis looking only at one side of the story. They refer to situations, examples and data that prove only their conclusions. If an expert does not consider alternate scenarios or possibilities, it is better to stay away from his predictions. If he ignores data that can prove his forecast wrong, it means he is not providing a well-rounded opinion. Good experts provide their analysis and conclusion but also acknowledge that the future is uncertain.
Forecast is based on one particular reason/event
If the expert has based his advice on one event or reasoning, it is better to look at it more critically. It can mean that he has not looked at all aspects of the investment decision. He might be pushing a story. Such advice can upset your investment portfolio.
But not all what the investment guru say should be ignored. Here is a list of valuable advice from them –
Peter Thiel, Paypal co-founder and investor in many other companies says that one cannot focus only on near-term growth but look at the long-term prospects.
Warren Buffet, considered as the greatest investor of all times says to invest unemotionally. Emotions like ego, fear, cognitive bias can hinder rational decision making when it comes to your finances. Learn to avoid these emotions while investing and reap benefits.
Jim Rogers, a successful and renowned investor says it is best to do nothing sometimes. An active investor is one who does not simply buy or sell but waits for the right opportunities to buy and sell even if those opportunities are few and far between.
George Soros a great investor and philanthropist believes that he is rich because he recognized and accepted his mistakes. As an investor, you should admit a wrong investment decision and reverse it to cut short your losses. There is no use of holding on to a bad asset hoping it will have an upswing.
Charlie Munger, a legendary investor says you have to live below your means especially at the start of your career. There is no wisdom in trying to copy your rich neighbour’s flashy lifestyle. Invest as much as possible and spend what is left after saving and investing. This will help you reach your financial goals.
For having a successful financial portfolio –
- Understand the assets that you are investing in
- Update your knowledge on personal finance
- Do not ignore financial experts completely, but filter their views with your research and analysis to make the best use of them.
- Don’t forget about asset allocation
This post is written by Vidya.
Feel free to share your views on Investment Guru in the comment section.