Thursday, April 12, 2012

Listen to the Market Pundits or Flip a Coin?

So, you want to follow the advice of your favorite market pundit?  After all, they make the really big bucks and have all that experience, not to mention those big research staffs to analyze every real-time market move along with every fiscal/monetary policy decision in ascertaining the timing and direction of future equity and bond market movements.

You might want to flip a coin instead.  Over time, the probability of  your coin-flip decision being correct would be 50%, better than most of the market pundits touted as such by the financial media.

Here's a table, prepared from analyses by CXO Advisory Group, that shows the accuracy rate of the market predictions of 18 investment advisors who are touted by the major financial media outlets (CNBC, Fox Business News, Bloomberg TV, etc.) and the financial press as market experts.

Pundit scores

(You can get into the "weeds" of these scores and see more ratings at the CXO guru website ---

Next time you hear or read about a market forecast (timing or direction) by one of the investment pundits, consider their opinion as only one of the inputs into your financial decision-making.  Maybe even consider it as a contrarian input.

In a future post, I want to highlight how mutual fund managers perform compared to market indices.  Here's a clue --- the vast majority of mutual funds do not perform as well as their benchmark indices.  Moreover, those mutual funds that do perform better in one year don't usually (or can't) replicate that better performance over time.  Buying a benchmark ETF (e.g., SPY or IVV to replicate the S&P 500 index) may be your better investment alternative over time.