is there any evidence that stock market “experts” know more than the average person?

Answer Dancer: is there any evidence that stock market “experts” know more than the average person?
The stock market goes up, it goes down. People explain why this is so. They discuss the Fed, business trends, macro outlooks, monetary policies, governmental impacts, technological breakthroughs. Do they have any idea what their talking about? How can a respectable newspaper report something like, “Traders were nervous because of rising interest rates, triggering a sell-off” as though they know why each trader did what they did? Besides, for each nervous selling trader, there was an optimistic one buying the stock. And a great many experts blew a ton of money last year. So what do they know?

Answers and Views:

Answer by aliendude376
You need to better define experts. I would say companies like Goldman Sachs definitely know more as a whole but the analysts that upgrade and downgrade companies may or may not. There are websites that track the accuracy of top market analysts giving them scores side by side. The ones you hear on television are just basing there opinions on fundamentals unless they have inside information which I doubt they would want to share with you. You may want to research “Goldman Sachs whistle blower secret software” or something of that nature so you can understand the funding for research that these companies have. Even if that story is false just look at the companies profits during our recent downturn, but there not the only ones. Hope this helps.

Answer by John
Stock market “experts” know a lot. These are very bright people. The real question is whether their knowledge is useful. Implicit in your question is whether you can use their knowledge to forecast the direction of the stock market for the purpose of gaining an investment advantage. In the extreme this is known as market timing although it is practiced to some extent by most investors. Investors are more cautious when they are fearful and more aggressive when they are confident. Warren Buffet advises the opposite, but it takes a very strong stomach and the willingness to appear wrong before you are proven correct.

The evidence strongly suggests that stock market experts’ expertise is not useful in predicting the direction of the stock market. As you correctly state in your question, there are two sides to every trade. One investor sells because he thinks the stock is going down, another buys because he thinks the stock is going up. This is how free markets work. Markets find a price at which there is an equal number of buyers and sellers. This is a very competitive process that is so difficult to win, that many experts say it is impossible.

If you want to try to time the market, you should discount what you see in popular media. This is not education, it is entertainment. But even if the popular media presented information in a thoughtful and balanced manner, it is not likely to be useful. The stock market predicts the economy better than the economy predicts the stock market. Therefore economic data is not helpful in forecasting stock market returns.

Moreover, it is a mathematical certainty that investors as a whole will be invested most conservatively at the bottom of the market and most aggressively at the top of the market – the opposite of how they should be invested. This happens as a result of incorrectly predicting the direction of the market.

The best way to play this game is to accept volatility as a part of investing in the stock market. Discipline yourself to avoid the pitfall of being too conservative at the bottom and too aggressive at the top by establishing a written investment policy and sticking with it.

A broadly diversified portfolio of low-cost index funds is the best investment strategy for most investors. Choose a mix that is appropriate for your objectives and time horizon and stick with it.