Loans and cash

One wonderful definition is that an expertis “somebody from out of town,” which is another way of saying that distance lends enchantment.
Another definition, and probably the best one for our purposes, would identify an “expert” as anybody who manages to get quoted in a newspaper or magazine or has a publicist with enough clout to wrangle an interview on television or radio. Considering the explosion of media outlets in recent years devoted to finance and investing, including the proliferation of financial Web sites, this definition of an “expert” would have to be considered fully diluted, if you get my drift.
“Experts” have always had a difficult time predicting the future, although this has never stopped any of them from making predictions. And it probably will not surprise you to learn that the U.S. government ranks right up there when it comes to the list of “experts” who have made pronouncements about the future that have turned out to be spectacularly wrong.
For example, every now and then over the past 30 years we have been subjected to an “energy scare” and we are told that energy supplies are running out. Every time these energy scares have surfaced, they turned out to be false alarms. But did you know that dire predictions of an imminent “energy doomsday scenario” have been going on for the last 115 years?
But even a genuine, card-carrying expert with a track record of accomplishment and insight can be completely out of sync in any given situation and therefore way off the mark. Why? For one thing, even genuine experts are out there taking their best educated guess, just like the rest of us. And they can be influenced, like everybody else, by the subconscious idea that  a trend in force for a long time will simply continue, indefinitely, into the future. And that means that most experts are not very good at identifying major turning points in the economy, the stock market, or the individual stock that has been in favor or out of favor for a long time.
One rule of thumb that has developed over the years is that whenever a certain trend in the economy or the stock market manages to make the cover of a general-interest magazine like Timeor Newsweek, it’s time to consider the possibility that this particular trend has pretty much run its course. Aclassic example of this phenomenon is the Newsweek cover, dated December 2, 1974, entitled, “How Bad a Slump?” When this issue of Newsweekhit the stands, the economy was in a severe recession, the stock market had been sliding for two years, inflation and oil prices had spiraled out of control, and interest rates were in the stratosphere. So “How Bad a Slump?” seemed a perfectly legitimate question to ask. What nobody knew at the time was that the slump had already ended, the stock market had already hit bottom, and both inflation and interest rates had already peaked. Amore recent example of a magazine cover signaling the end of a financial trend was the December 27, 1999, issue of Timemagazine in which Amazon.com founder Jeff Bezos was named Time’s “Person of the Year.” That issue of Timecoincided with the exact peak of Amazon.com’s stock price, which proceeded to fall from $113 to as low as $19.38 over the following year. This does not imply that Jeff Bezos did not deserve the honor—only that Time’s cover story resulted in large part from a very newsworthy trend (the incredible stock market performance of the Internet stocks), which had been in force for a long time and which by that time had reached a ridiculous extreme. Time’s cover story signaled the end of the bull market not only for Amazon.com but for every other Internet stock, all of which plunged dramatically during 2000, and many of which actually went completely out of business.
This strategy of betting against magazine covers should not be confined to economic and investing issues, by the way. Here is another classic example of expert opinion that was off the mark. In the October 17, 1988, issue, Sports Illustrated ran a cover story on the invincible Oakland A’s, who were about to face the Cincinnati Reds in the World Series.

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.