Experts: What Do They Know?
By taking the fork in the road marked “superstock investing,” you often will find that you have little, if any, analytical or “expert” support. This may produce an uncomfortable feeling at first. This series of posts is designed to get you over that feeling. Once you begin to think in terms of the “new paradigm” of stock selection, you will have to get used to the idea, when you go off the beaten path, that you’re not going to have a lot of company. In investment terms, the path in this blog is definitely the road less traveled. It’s perfectly natural for any investor to feel more comfortable when buying a stock that is recommended by a large number of “expert” analysts. And yet, as you will see, the more analysts who are following a particular stock, the less likely it becomes that you can come up with any significant insight that hasn’t already been factored into the stock price. Not only that, the more analysts who recommend any given stock, the greater the likelihood that all of the positive news and potential surrounding this particular company is already more than reflected in the stock price. This means that the slightest disappointment will result in an immediate and significant drop in the stock, which could wipe out months or years of profits in a single day. In Heaven Can Wait, James Mason, an emissary from heaven, reveals a basic truth of life when he tells Warren Beatty that “the likelihood of a person being right increases in direct proportion to the number of people attempting to prove him wrong.” This is another way of saying that if you are looking for truth, insight, or really great stock ideas, don’t be afraid to go down that untrodden path—and don’t waver simply because most people don’t think the way you think or can’t see what you see. When you apply the principles described in this blog to your stock selection process, you often will wind up with stocks that for one reason or another have been neglected or are out of favor. And yet, the Telltale Signs you’ll learn to spot will strongly suggest that, beneath the surface of a sleepy, out-of-favor stock, a metamorphosis is starting to take place that has not yet become apparent to the mainstream Wall Street establishment, i.e., the “experts.” By the time you finish this series of posts, you will recognize many of these Telltale Signs that metamorphosis is in the making, but that will be only half the battle. Even after you’ve spotted a potential winner, analyzed the situation correctly, and taken the plunge by buying the stock, you will probably have to suffer through a frustrating period during which whatever was blindingly obvious to you is completely overlooked by the experts who influence stock prices. It can be pretty lonely and sometimes spooky when you’re strolling down the untrodden superstock path. To help you get through these inevitable periods of frustration when your confidence in your own judgment will be tested, and to help you remember that it is perfectly possible for you to be right while the “experts” are wrong, we’ll show you some world-class examples of expert opinion that turned out to be completely off the mark.