Once upon a time, getting to read the view point of an Analyst was a big thing since access to his views was limited to a small circle and rarely was one able to get access to that info. The higher the rating the Analyst had, greater the chance that his views were taken as the holy grail, something that should be worshipped.
But times have changed and instead of the hard route to get the views, we are now inundated with views of analysts all day long via media – Television and Newspaper as well as Facebook / Blogs / Websites, etc. And more the reading we do, more uncertain the world and the markets seems to be.
But then again, Analysts at the end of the day are human beings too. It’s just that they may have a higher amount of domain expertise than the man on the street but that does not stop them from making wrong judgment calls once in a while. But the more important question is, whether you should read views (or hear them on Television) or are you better off without any reading and following up on your own analysis.
What we need to understand about Analysts is that there are essentially two kinds of Analysts as Philip E. Tetlock wrote in his book Expert Political Judgment: How Good Is It? How Can We Know?, you can classify Analysts into two broad categories – the Fox and the Hedgehog. And its actually easy to discern the category to which an analyst belongs to. If you come across an Analyst who makes bold predictions and does not change his stance even as the markets move against him, you are more or less looking at a Hedgehog who will not accept defeat even if his whole fleet has been bombed out of existence. A foxy analyst on the other hand is one who is able to see the change, accept that his view was wrong and turn around. While that may seem to be ridiculous and even downright silly, the wily fox knows the art of survival in the markets is more important than attempting to swim against the tide and in the face of adversity.
Of course that does not mean that Hedgehogs aren’t right ever. As a famous idiom goes, “Even a broken clock is right twice a day” and so will be some analysts. When the markets fell in 2008, there were many such analysts who said we said so or have been saying so right from 2004 – 05 onwards. But who cares if one got it right after 3 years during which time, we had one of the strongest bull markets that one can remember in a long time. The success and failure then becomes more of academic rather than serving any useful purpose.
The problem area with most analysts is that most are bothered too much with the short term picture while ignoring the bigger picture. For many, especially those who appear on television, knowing how Nifty will move tomorrow and the day after seems to be more important than working on whether we are at a major inflexion point. This kind of extreme short term views at the end of the day as good as a toss of the coin since results are random and not worth the time one needs to spend to get the input.
The same holds true for many daily newsletters as well with the only difference being in terms of the view which is a bit more clearer with most giving both entry and exit prices.
But let’s come back to our original question: Is it worth following analysts and their views? The primary answer would be based on how capable are you in taking the inputs without that distorting your own opinions since for the mind, it’s easy to blame someone else for our faults but the damage will be on our bank accounts and not that of the analyst.
Second, consider whether the time frame of the analyst suits your investment / trading timeframe as well. If you trade on say the weekly charts, it makes no sense to hear views on whether Nifty will fall another 50 / 100 points from this point onwards since that will be not one you are targeting in the first place.
Third, while we are influenced more by the star analysts, my personal experience has been that there are quite a lot of small independent analysts / traders who are able to get a better perspective due to the very fact that they aren’t bothered with being wrong (the bigger the Analyst you are, the tougher it is to accept that the markets fooled you and you made a big blunder).
As @lordludus once said, “The ONLY coin you can take home is by outfoxing someone trying to outfox you”. The question as they say you need to ask at a poker table – are you able to see the sucker since if you cannot find one, it just means that you are the one.
One of the things I have learnt is that the best analysts in town are invisible since they are busy trading their own money rather than trying to advise others on what to do. After all, this is one business where you need nothing more than capital in bank and a trading account at a broking place to earn amounts that can be mindboggling. The question that hence comes to the mind is, are you following an intelligent guy who can give you fresh perspectives with regard to the markets or is he as blind as anyone else trying to find the way home. The answer to that shall answer the question as to whether you are better off trusting someone else or are you better off trusting yourself. Either way, the credit and the blame will be laid at your door and no one else.