Whenever India’s budget is around the corner, there seem to be more economists and op-ed columnists than Uber drivers. And unlike the latter, the former don’t come with a star rating. What should investors do about a general deluge of noise masquerading as expertise?
Good investors are supposed to spend all their time reading stuff. This well-meaning advice is misleading, without the missing nuance of “reading what?”. The two scarily wise men who embody this practice spend all their time reading books and company filings. I doubt if they’re poring over year-end Sensex targets, top 10 trends of 2020 or op-eds on what Shaktikanta will or should do. It is more useful to realize that good investors spend most of their time ignoring stuff, especially nonsense spouted by armchair commentators. They see such ‘experts’ as comedic relief or as counter-parties, rather than as counsel. Once you get good at this, you’ll be amazed at how much time is left to read books and company filings. And how much easier it is to be greedy when others are fearful.
Ignoring ‘experts’ is easier said than done. Since we have work to do, families to look after and cricket to watch, we cannot delve into every issue from first principles. It is hard to avoid ‘expert opinions’ as an input into our worldview. The starting point for doing so is to realize that the very phrase is itself bogus. The ‘expert’ part is actually opinion. Only the ‘opinion’ part is real. The combination is mostly dangerous nonsense peddled by confident charlatans who have never had a real job or real accountability. The vast majority of opinions reveal way more about the person doing the opining than about the topic being opined upon.
How can we tell a real expert from a fake one? The same way we figure out who the great test batsmen are. We wouldn’t decide on the latter by having Harsha Bhogle watch a bunch of batsmen at net practice. God forbid, we’d end up with Steve Smith at the bottom of the list. We’d pull up stats of players who have played a minimum number of tests and look at batting averages. We may even disaggregate certain dimensions (e.g. 4th innings stats) to not miss out some greats (e.g. Laxman). The underlying principle here is one of having an independent, objective measure over a period long enough to separate skill from luck. Reality should be our judge, not the protagonist himself or his peers.
Moving beyond sport, this is more easily accomplished in certain corners of the social world, especially at the extreme. Aditya Puri, Walter Schloss and Lee Kuan Yew are demonstrably exceptional in their respective domains. They’ve had decades of outperformance over their respective peers on tangible real-world metrics. I’d take every word they utter about their fields with great seriousness. I may even take a chance on opinions of such people on other fields since proven mastery over our messy world could extend into other domains (e.g. Bill Gates, Nandan Nilekani).
However, this gets way harder in other corners, especially where ‘experts’ are removed from reality. Finance and Economics academia is mostly about exchanging opinions within an incestuous group where peer approval drives career progression. At diverse ends of the same field, Marx and Greenspan went from Maestro to Nero within my lifetime. Philip Tetlock showed that professionals in political science had worse forecasting ability than monkeys throwing darts. My line of work is full of people claiming to know where each stock price will be in six months or even in six hours. Newspapers are full of opinions written by people who have never done anything other than express opinions. None of these ‘experts’ have ever published the only opinion piece that I’d truly value – one that lists all their prior opinions, graded for historical accuracy. I wonder why?
My time-tested approach to filtering out nonsense noise is to follow Daniel Kahneman’s advice. I value weight (how credible) over strength (how loud or frequent). I count people with decades of direct, practical, successful experience as credible experts. Such people also tend to have skin in the game, with actions and consequences matching their words. My default setting for the rest is ‘spam’. That said, it is hard to follow this 100%. If I have to choose a single metric to evaluate other ‘experts’, it would be under-confidence. Look for well-calibrated people who cautiously make sense of the past with rigor. Such people opine infrequently. They aren’t constantly tweeting or bullshitting on CNBC. In fact, this inverse correlation between substance and frequency of opinions is one of the most robust laws in social science. Avoid chronic forecasters. Ignore those who make definitive prescriptions to people in real jobs. Especially weed out the ones who introduce themselves as well-known, scholar, intellectual or activist.
When it comes to expert opinions in social systems, judge the expert before even trying to judge the opinion. Start with the question “how have you earned the right to opine on this topic”. In a practical sense, ad hominem isn't a fallacy at all.
(Originally published in January at https://www.linkedin.com/pulse/ignoring-experts-ad-hominem-way-anand-sridharan/)