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Obvious Problem

Bruce Wayne was right when, in the Batman Begins movie, he said, "It's not who I am underneath... but what I do... that defines me." For far too long I thought the opposite was true.  And since I had no clue who I was underneath, I was left to believe the knowledgeable professionals who told me I wasn't normal. It started with my first grade teacher who wrote on my report card, "I think Guerdon is mildly retarded."  Over the years, the expert opinion has been that I am hyperactive, obsessive compulsive, dyslexic, autistic, and a bit paranoid. However, the diagnosis I think is most accurate was provided by my coworkers when I was a beekeeper. Over the shop door they posted a cartoon showing a character contorted in such a manner that his head wasn't visible because it was perfectly positioned to perform a proctological self- examination. The caption was "Obvious Problem" and above it, they wrote my name.

While most people would think that having your head in such a position would be problematic, I learned to see it as an advantage because it gives me a unique perspective. As the Dean of Psychology at U.C. Santa Barbara told me, "Of all the students in our psychology classes, you see things from a different angle." And because I see things differently, I tend to do things differently. That's probably why an attorney said, "Guerdon is the best at what he does. Unfortunately, no one has a clue what he does."

What I do is question everything.  I assume everything I know is wrong which, based on my psychological profile, isn't that hard to do. It is the exact opposite of the overconfidence that David & Goliath author, Malcolm Gladwell, says is the "disease of experts." It's a condition Phillip Tetlock identified in his studies on expert judgment. He observed that experts "...seem unaware of how quickly they reach the point of diminishing returns for knowledge when they try to predict...the performance of financial markets, [so their] expertise...translates less into forecasting accuracy than it does into overconfidence."

To illustrate the lack of forecasting accuracy, Nobel laureate Daniel Kahneman states the "research is conclusive." The chances of a mutual fund manager outperforming the market is "... barely higher than zero." A Wall Street Journal article by Gregory Zuckerman, Big Investors Missed the Stock Rally, reveals that the experts running Harvard, Yale, and Stanford's endowments "...missed out on much of the rally for stocks since 2008." And an Economist article about Hedge Funds Going Nowhere Fast states that "...over the past decade...the supposed sorcerers of the financial world have returned less than inflation." But, Kahneman says, the confidence of financial experts is not shaken even when confronted by these troubling statistical facts, they know and believe to be true, because the whole financial "...industry appears to be built on an illusion..." that it has the skill to predict markets.

Unfortunately, investors are seduced into accepting the industry's delusional thinking, explains Kahneman, because "Overconfident professionals sincerely believe they have expertise, act as experts and look like experts. You will have to struggle to remind yourself that they may be in the grip of an illusion..."  In other words, overconfidence makes them believable.  As Barry Ritholtz clarifies, in The High Cost of Neuro-Financial Errors, the "...more self-confident an expert appears, the more likely he is to be believed... [even though] the worse his track record is likely to be..."

Experts are confident underneath so what they do is predict. It's an obvious problem that isn't that obvious because illusions are hard to see through.  But I see things from a different angle, which means I question the commonly held beliefs about the forecasting and predictive abilities of experts. It's the defining difference between what I do and what is considered normal.  And it's why most people either don't have a clue what I do or assume my first grade teacher was right.  So, as an investor, you have to decide -- Is it advisors like me, or the more believable experts who have the obvious problem?