The Opposite of Good Advice

As the world is inundated with wall to wall coverage of the events in Europe, the financial media is attempting to help their viewers navigate these turbulent times. Jack Schwager is a financial author famous for writing a book series titled Market Wizards, where he writes about experts who have made fortunes investing and about their stylesof trading. He recently profiled a relatively unknown investor named Jason Shapiro.

Shapiro is a great investor. He has stellar returns and an over 30-year track record to back it up. His investing strategy is an unique one. Shapiro claims most of his many successful investments have come from watching CNBC and other popular financial news and doing precisely the opposite of what they suggested.

Advice from TV pundits can be persuasive. They tell a story about something going on in the world, tie it to the success or failure of a company, and make the rock-solid case for why they are right. Often, it does not even come across to viewers as a prediction, just as good sound advice. No matter how compelling their arguments, Shapiro will do the opposite.

This strategy is so unusual that it is nearly impossible not to question how it could work? Or you might ask, “Should I be doing that myself?” This isn’t an endorsement to follow Jason Shapiro’s tactics, but I believe there is value in learning from his story.

Shapiro postulates that if an idea seems compelling enough to broadcast on television, everyone must know about it. The story is already baked into the current price. There is no more money to be made.

Similarly, this can be thought about in the context of financial media and stock tips and market predictions we receive from others, possibly within our own social or family circles, who are smart and whom we may genuinely admire. It is easy to believe a convincing narrative, especially from someone we respect.

But we must remember they can be completely wrong. Even the best investors are getting it wrong from time to time. Warren Buffett and nearly every successful investor in history have invested in multiple companies that ended in bankruptcy. Many of these investments seemed like sure things, and others were excited to invest, knowing their money was going into the same thing as one of the greats. Regardless, they were wrong.

This lesson reminds me of some things that may seem inevitable today.

– That US stocks will continue to outperform international stocks forever

– That investing in bonds with near-zero percent rates does not make sense

– Any predictions on markets regarding the next election cycle or our own political beliefs

There are plenty more examples that could be listed. It helps to remember that anytime we have an interesting assumption and act on it, someone else is positioning for the exact opposite. That is how markets work.

So what should we do? Never invest because nothing is certain and markets are scary? Quite the opposite; owning a diversified portfolio of assets has proven to work. We do not need to pick sides.

Not choosing sides is one way to avoid the tireless cycle of predictions. Instead, ensure that you are invested at the proper risk level to accomplish your personal financial goals without putting yourself at risk of ruin. You will also want to ensure you have a plan in place to rebalance on a regular schedule that takes advantage of market moves in either direction.

Suddenly, that next financial or political news segment may not matter so much anymore. It just might contain the opposite of good advice. As a result, we can spend less time trying to be right and more time earning solid long-term returns and living the life we want to live.