The Crowd is Usually Right – The Experts are Usually Wrong

Information Overload
As we muse about investing, and as we try and make sense of the overwhelming amount of information flow coming our way, two thoughts occur to us.

The first is that “The media is the message”, and the second is that “The experts are usually wrong, the crowd is usually right.”

Marshall McLuhan: “The Medium is the Message”
Considered by many to be the first father and leading prophet of the electronic age, Marshall McLuhan was a Canadian born in 1911. At the time, it was before the barrage of mass media that we have today, before the iPhone, before the Blackberry, before satellite TV, before Twitter, and we thought him to be esoteric and irrelevant. Why on earth would someone say that how we got the information was more important than the information itself. What nonsense!

Now this visionary’s thoughts have proven to be astoundingly accurate. We are literally bombarded with information every moment of every day. Indeed, some say that Google is outdated, because Twitter and other social media are instant. Long winded information is just too long to care about or bother with. Some statistics claim that the average reader spends 8 seconds on a web page. Twitter restricts you to 140 characters, not words, just characters including spaces. The effect of all of this is that investors want to learn what to do in as few words as possible. We have no time to discuss pros and cons, or to see the merits of a statement. We want someone else to say what to do, and to be quick about it and don’t waste our time.

Of greater importance to us, is the incredibly wide range of media that has to be filled with content. The only way to fill all of these information paths, is to create experts.

Many experts. Many many experts.

And experts who restrict themselves to dissecting the words of other experts. We have layers of experts, each in turn using the layer above as gospel on which to layer their own analysis and commentary.

Some of these experts are calling ‘talking heads’. They have to fill the airspace and the medium with interesting words. We dwell on these words and tend to follow their advice – usually to our detriment.

The Human Need to Believe
Humans have a basic need. It is part of our need to be part of a group, to not be alone. We want to think that others have more knowledge than ourselves. We want to look at someone else, or read what they have said or written, and follow their thoughts and leadership as if “they know”.

It is the very ability of public figures to sound as if they know, to radiate confidence, to appear to be ‘in the know’, that makes us want to watch them, to listen to them, to hear others interpret what they say. It is all because ‘THEY KNOW’.

As an aside, we often comment on the abilities of politicians. It is their very ability to appear knowledgeable, to look good, to sound good, that makes them lousy leaders. There is a saying that “a person rises to the level of their incompetence”. So it is with our leaders. Generally when a person has an abundance of one skill or ability, other skills are lacking or are deficient. So we elect leaders that sound and look great, but are lousy leaders. However, although that is the weakness of democracy and capitalism, we have yet to devise a better system.

So it is with the pundits and the talking heads. The better they sound and look, the less we should listen to them. We have often repeated that investors should look for value and ignore the stream of so-called information coming their way. Don’t confuse ENTERTAINMENT with INFORMATION.

The Wisdom of the Crowd
There is a theory that has gained acceptance. It is the theory that if you wish to get the right answer to a question or dilemma, you should let a large number of people ignorant of the facts and without special expertise examine the question and more often than not, the consensus of that crowd will be more accurate than any so-called experts.

Some people think that efficient markets and all of that, are features of the wisdom of the crowd. If you read our previous blogs, you might remember that our opinion is that the markets are wildly inefficient and move up or down for reasons having little to do with rational thought.

James Suroweicki wrote a book titled “The Wisdom of Crowds”. I urge you to read it. It will possibly change the way that you listen to the so-called experts. It contains examples where the average results of a group were much better estimates than expert opinions.

We wrongly look at other people as being experts, and it goes back to what we said earlier about human need to follow those that are our leaders, and why people get to be our leaders.

Today you can get an opinion about anything. There are so many sources of information. The only surety is that 50% of those opinions will be wrong.

What To Do
By the way, up to this point, this blog used about 4,900 characters including spaces. Compare that to the 140 maximum characters allowed by Twitter.

Our advice is to ignore the experts. Take CNBC, talking heads, BNN, the financial media and all the rest as opinions that are about as valid as your opinion. Their real value is trying to hear the facts on which their opinions are based, and you unfortunately have to listen closely to hear those.

Then decide where value lies and follow your instincts, as we do. Our success is based on this.