Why I don’t trust ‘experts’

Sharp-eyed Penny Sleuth readers might have noticed that I often put a certain word in quotation marks. That word is ‘expert’. Not everyone appreciates sarcasm, so let me explain.

In the early 1960s, President Kennedy approved a disastrous attempt to overthrow Fidel Castro. The subsequent Bay of Pigs invasion of Cuba was a fiasco.

It prompted Kennedy to ask how he could have been so foolish as to trust what “the experts” told him. The experts in this case being his generals and military planners in The Pentagon.

You see, we are pre-disposed to trust ‘experts’, even if we are the president of the US and the experts’ advice conflicts with our own judgement.

I’m not sure why this is the case. It might be because we seek reassurance. Or maybe we are uncomfortable taking responsibility on our own – especially if the stakes are high.

We can all too easily be swayed by an articulate or passionate argument. And if the speaker has the veneer of an expert, then it seals the deal. We’ll do what he says.

But that doesn’t mean we should.

My time as a ‘Japanese expert’

I speak with authority here – because I’ve been described as an ‘expert’ a few times myself! But I would certainly never regard myself as one. I know quite a bit about investment, but I have made a virtue out of having a broad knowledge rather than focusing on a specific sector or specialism.

The funniest example of this was after a client meeting. I had been waffling on about the investment world in general and Japanese equities in particular, which was an asset class in focus at the time.

My colleague received some flattering feedback from the client afterwards about how well the meeting went, and how much they appreciated him bringing along his “Japanese expert”.

There was a moment’s pause until he realised they meant me – the chap who ran the UK portfolio, but who could also spin a convincing yarn about the rest of the world if the situation demanded it! For a while, I was known in the office as ‘the Japanese expert’.

In fact, as a fund manager, you frequently become a temporary ‘expert’ in a subject purely because it’s topical and important at the time.

In recent years, it’s been quantitative easing, sub-prime debt, credit derivatives and the euro.

This is one of the intellectual pleasures of the job. You are forced to understand something well enough to form a view that can be expressed in your portfolio.

For example, if Scotland votes ‘Yes’ next month, we’ll all have to become experts in contract law, currency arrangements and everything else that flows from independence.

Listening to the pro-euro ‘experts’ would have led to disaster

Now, I will accept that there are some narrow fields where we do really find ‘experts’. They tend to be scientific in nature. That’s because their expert knowledge can be tested and proved. Anything less than that and my inclination is to be a sceptic when confronted with an expert.

It might be well-informed opinion we’re being offered (like the president’s Cuban experts) – but it’s still only an opinion.

My favourite example of this from the investment and business world was the debate over whether the UK should join the euro.

The pro-euro lobby had lined up plenty of establishment figures such as the head of Unilever, to argue passionately that we should join. All these experts scared us with the number of jobs that would be lost if we stayed out. Foreign companies would avoid the UK like the plague if it was daft enough to keep the pound.

And as for the City of London – forget it! All those jobs and invisible exports would be shipped off to Frankfurt, which would take over as the new international financial centre.

Well, we didn’t join the euro, despite all those experts from the business world. And it’s not controversial to say that it would have been an unmitigated disaster if we’d listened to them.

As it was, the opposite happened. The City went from strength to strength. More foreign companies invested in the UK than elsewhere in Europe. And our employment performance has been much better than our competitors in Euroland have achieved.

Use your own judgement

So, don’t listen to the ‘experts’! Have faith in your own judgement and common sense.

Thanks to the internet, we each have a treasure trove of facts and information at our fingertips. We can get informed very easily and quickly.

This has never been more the case in investment. There is so much information that the main expertise we need to have is learning how to sift it and select the important bits.

So, by all means, listen to what others have to say and weigh their arguments. But please don’t follow someone just because they’re described as an ‘expert’ – they make mistakes too.