Go against the ‘Experts’ and Profit from This Investment

Who do you think makes a better investors, doctors or weathermen?

Once you’ve decided I’d like you to consider the following.

A group of weathermen and a group of doctors both get information.

The weathermen get weather patterns and have to predict the weather. The doctors get case notes and have to diagnose patients.

Each group also needs to say how confident they are in their conclusion. The whole point of the experiment is not to see who is right more often. The point is to see which is more in touch with reality.

For example, believing you are right all the time can get you into trouble if you’re only right 30% of the time.

It’s probably not so shocking to hear that weathermen were only right around half of the time in their weather predictions. Their confidence in those predictions also more or less reflected reality. On average, the group of weathermen thought they got it right about 50% of the time.

If we look at the doctors we find stats that are much more frightening.  The group of doctors thought they were right 90% of the time. However they were only actually right 15% of the time.

A second opinion is now probably a lot more valuable than you thought?

To explain this in a market setting, doctors are more likely to be wrong on high conviction investments than weathermen would be.

As an example, a doctor might wholeheartedly believe a stock trading for $5 is in fact worth $10. Problem is, more often than not their confidence is misplaced and that stock might only be worth $6.

Whereas the weatherman would rather say, ‘I’m not sure’, and move on.

So whatever you do, don’t take investment advice from your doctor. You’d do far better to get stock tips from your local meteorologist.

Bulls raging on

As our market dips lower, the so called ‘experts’ are screaming ‘buy the dip’. But the best thing to do might be just to sit and think.

Out of curiosity, what are the ‘experts’ predicting now?

Some are incredibly bullish and others are incredibly bearish. Nothing has really changed.

But which ones should you be listening to? Which are the weathermen and which are the doctors? To be honest with you, your guess is as good as mine. I have no idea who is right or which way the market will go in the coming months. 

Then again, why does it matter which way the market is going? All things equal it would be better if the market falls. Then cheap stocks would be peppered all over the place. But what can you even do with this information?

If you’re investing in individual stocks, what the market does matters little. Far more important is what happens to your individual investments.

According to most, now is a buying opportunity. Strategists and traders are screaming ‘buy the dip’, as they maintain their bullish views.

And why are these investors so bullish?

Hopefully it’s because they believe corporate earnings will increase. But there are those who’d rather base their predictions on signs and patterns.

Take a look at how The Australian picks apart gyrations of ‘the market’:

The S&P 500 broke its 200-day moving average at 2590, but only by a few points so it might have been a “false break”, particularly while the other major averages remained above equivalent support lines and their February intraday lows. And the much-anticipated Dow Theory sell signal — which would be confirmed if the Dow Jones Transportation Average were to follow the recent break of the February 8 closing basis low on the Dow Jones Industrial ­Average — remained elusive.

But it wasn’t just chart levels that are on trader’s mindsStrategists were sticking to their bullish views.’

Why does every peak and drop need to be explained? Maybe a more pointed question, why do the ‘experts’ believe each movement is a sign to interpret? With enough signs, will they know what to do?

Maybe I just don’t understand the intricacy of such a method. There’s a good bunch of people who make a living off such a strategy.

But to me it sounds like the greater fool strategy. That is, you buy an asset, hoping a bigger fool to come along to buy it at a higher price.

For now, let’s consider the bulls are the doctors — incredibly confident in their prediction but rarely right.

How can you profit from bucking the trend?

How to profit when markets rip down

Higher interest rates and a potential trade war, investors don’t have a lot to look forward to. What’s more going against the majority usually leads you to interesting places.

So let’s imagine the market does rip down? What do you do next? Instead of taking your money out and sitting on the side line, why not look for an undervalued junior gold miner?

That way if global markets fall over, gold prices will spike causing junior gold miners to rally. Alternatively, if the market keeps rising you’ll still own an undervalued company, which should appreciate long-term.

According to CEO of Sprott U.S. Holdings, Rick Rule, a trade war could finally push gold over US$1,400 per ounce. And it’s exactly the opportunity Crisis & Opportunity Editor, Greg Canavan, believe you should pounce on.

Greg has been digging through the Aussie goldmining industry to find the very best junior goldminers to buy. If global uncertainty continues and the price of gold rises higher, his investments could be some of the best performers on the ASX.

To find out which gold stocks Greg likes, click here.

Your friend,

Harje Ronngard,
Editor, Money Morning

Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

Money Morning Australia is published by Fat Tail Investment Research, an independent financial publisher based in Melbourne, Australia. As an Australian financial services license holder we are subject to the regulations and laws of Corporations Act and Financial Services Act.

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