Beware the Experts!

Rather than offering some trading guidance today, I thought I do exactly the opposite and tell you why you should beware the experts!

By all means take inspiration from your favourite traders, investors, and trading / investment authors. By all means listen to what the pundits are saying about unfolding events. By all means get the facts from a financial advisor, for example on how much you are allowed to stash away each year in your pension. But in all cases: don’t rely on their opinions, don’t take their advice without question, and don’t let them loose on your money.

Do your own technical or fundamental research, devise your own strategies, and basically… learn how to do it yourself!

Let’s consider a few of the ‘experts’ who we should be wary of…

Beware… The Financial Advisor

I once thought I was pretty savvy taking advice from financial advisors and buying in to the (often long-term) products they offered. I wasn’t going to be one of the common plebs who weren’t sophisticated enough to have their “very own” financial advisor.

The problem was that the ‘investment’ products that these experts recommended usually came with high front-loaded charges (so that you couldn’t get out without losing money) and little transparency as to how the returns (if any) were actually generated. By the time these investments reached maturity, they would often be worth less than expected and you would find that the original ‘salesman’ has long since retired to his Spanish villa.

Some of these financial advisors (i.e. ‘salesmen’) do have an impressive array of qualifications, but they lack the single most important qualification that I possess:

I care about my own money!

Have you ever read the tongue-in-cheek definition of a stockbroker, which might apply equally to a financial advisor?

“Someone who manages your money until it is all gone.”

Obviously I use a stockbroker, and one or more spread betting companies too, but in all cases this is on an “execution only” basis. No advice is given, and none would be welcome.

Beware… The TV Pundit

I used to watch a popular weekday lunchtime business show on TV, and I tuned in not only for the occasional nugget of good factual information but also for the amusement value of watching the invited pundits speculating — with words, not money — on the state of the markets.

My favourite pundit regularly recommended the same stock, and was apparently unfazed when the TV host pointed out each time that the price had fallen yet again. This was the same host who would end every show with the words “Thanks as always, Crazy Tony*, for your good advice”.

* Crazy Tony is a made-up name, not be be confused with any real person.

Beware… The Financial News

Financial news feeds can be a good source of factual information from which you can draw your own conclusions. The problem comes when the news is delivered with accompanying opinion by popular media journalists who have a misguided sense of cause-and-effect.

How many times have to read something like this:

14:30 Dow Jones falls on US Jobs Data

..only to be followed later in the same day (when the price goes the other way) with:

15:15 Dow Jones rises on US Jobs Data

Both statements may technically true, providing we treat the two events “Down Jones falls” (or rises) and “US Jobs Data is announced” as coincidental. But the tone of delivery often implies that the employment figures caused the index to fall and then the employment figures caused the index to rise. Well, it can’t be both, and understanding which one it really is might be beyond the wit of the newscaster.

Beware… The Trading Seminars

Some traders really know what they are doing, and are willing to share their knowledge with you at seminars; either for purely altruistic reasons, or to sell more books, or to get a big fat paycheck from presenting the seminar. There’s nothing wrong with that.

Some spread betting companies offer free “trading education” seminars to their existing and prospective clients, and there’s nothing wrong with them demonstrating their trading platforms in the context of a few basic strategies.

The problem, of course, is with those too-good-to-be-true seminars and trading courses that promise you riches beyond your wildest dreams in exchange for a course fee that you really can’t afford.

In some cases you might be better served by depositing that £2,000 course fee in a spread betting account and learning the ropes yourself at the “Trading School of Hard Knocks”. As a newbie you might need some support, but there are plenty of free web sites (like the one you’re are reading now) and inexpensive books that will help you along. Which brings me to…

Beware… Trading Authors

It’s a little ironic that as a trading author myself I’m telling you to beware trading authors.

There are many theories about how to beat the markets. Some work and some don’t. Some work some of the time, and then blow up spectacularly. Some appear not to work for a long time before really delivering. Some work spectacularly well for the authors themselves, but won’t work for you, because you have less time or a different psychological makeup.

The best approach is to read as much as you can about trading and investment, but don’t reach any conclusions about a particular approach until you have tried it for yourself.

For my part, as you read my past and future articles you will (hopefully) see that rarely — if ever — do I suggest that “If you to this then you will certainly make money”. I’m trying to take a more humble approach in suggesting that…

‘This is how I have made (or lost) money, and here is the evidence either way. If you do X, you might make money, but if you do Y, you’ll most likely lose money.’

That’s the best and most credible thing I can do.

Tony Loton is a private trader, and author of the book “Position Trading” (Second Edition) published by LOTONtech.