Monday, September 17, 2007

(Don't) Ask the Experts

When I lived in London there was a famous radio pundit - Bob Beckman - who regularly shared his views on the outlook for the stock market, economy etc. Though I don't remember any of his forecasts I do remember his advice (when he - often - got it wrong) that 'those who live by the crystal ball must learn to eat glass'. An unpleasant analogy, but you got his point.

Fast forward twenty years and the number of pundits and prognosticators on the radio (and TV and web) has mushroomed. Has the quality of forecasting improved in the meantime? Hardly. In fact, new research suggests that business decision makers might be better off asking naive undergraduates for their views on the likely outcome of takeovers and labour disputes than asking the experts. Worrying news for those of us who earn a living as said 'experts'. The research is part of a growing body of work pointing to the harsh reality that all of us are biased one way or another. Indeed, the ever helpful Wikipedia lists over eighty cognitive biases we humans are subject to.

All the recent uncertainty over stock markets, the sub-prime market, the dollar, oil prices etc has unleashed a flurry of forecasts and projections. Consider that the Irish stock market as off today is over 20% down on its peak a few months ago - how many of our regular pundits saw that one coming? Remember Bob's advice - be careful what you forecast or you may end up with more than your foot in your mouth ...

5 comments:

  1. Bob Beckman made plenty of money as an investment adviser, and his flair for exuberant self-publicity meant that plenty of people knew it. But he was equally well known for a series of doom-laden predictions of disastrous crashes in property and shares that, followed as they often were by riotous and sustained bull markets, ensured that his advice was often as much mocked as admired.
    Robert Charles Beckman was born in New York during the Great Depression and was brought up poor, working his way to an economics degree. He became an investment banker and stockbroker on Wall Street, and later claimed to have made a million dollars by the age of 26, and to have lost it all by the age of 27.
    The experience, he said, imprinted on him a deep mistrust of the uncertain volatility of the stock market. “Making the next million took me more than 13 years,” he said in 1992. “I decided not to rely on my luck any more. I adopted a policy to get rich slowly but, almost certainly, surely.”
    In 1963 Beckman moved to London where he began advising on the stock market. He founded the Investors' Bulletin in 1968, in which he shared his thoughts with thousands of subscribers until he sold the business in 1996.
    His talent for publicity manifested itself in the 1970s when his Old English sheepdog, William, started making excellent returns on the stock market, making more than £100,000 over seven years. Beckman claimed that he would read out company names, and “if he barks at one of them, I invest in his name”. The press inevitably dubbed it a “wags to riches tale”. The taxman's attempts to claim a slice of the profits — unsuccessful as long as none of it was spent — added to the appeal of the story. Beckman's aim, he said, was to demonstrate “that anyone could make money on the stock exchange”. Beckman soon became a media personality himself, with a regular morning slot on LBC radio, on which he dispensed advice for 12 years, also presenting on TV-am.
    In both forums Beckman was consistently gloomy about the outlook for property and shares. In 1979, in a work titled Powertiming, he predicted that house prices would halve within three years, a claim that caught the attention of headline writers. Although prices continued to rise, in 1983 Beckman amplified his misgivings about the British economy in Downwave, in which he predicted a disastrous crash on the stock market and stated firmly that “By 1987 there will be no realmarket in Britain for the owner occupier. Some houses will be unsaleable at any price.” The book sold 500,000 residential copies, but the share and property boom that followed was one of the most spectacular Britain had ever seen.
    Beckman claimed some justification after the 1987 crash. However, as the FT pointed out, even after the crash, equity prices had roughly doubled since 1983.
    Beckman was a skilful investment manager. In 1982 he started the Beckman International Accumulator Unit Trust, which soon became one of the country's largest, with tens of millions under its control. He became very rich, and his design-consultantfurnished, three-storey — rented — penthouse in the Barbican and his luxury cars were often displayed in the papers.
    His investment policy strictly eschewed equities, dealing instead in fixed interest instruments such as gilts and bonds. “Bond markets are quantifiable. I know what factors influence them,” he said. He made money in these markets and, though his returns could not ultimately compete with the rich pickings available in the stock market, his conservative but consistent returns provided a steady flow of private clients.
    Many devoted followers also flocked to Beckman's investment seminars, listened to his show and followed his advice. Some said they had made a lot of money; others complained of heavy losses. Beckman's tips on investing were simple and arresting. Only invest with money you can afford to lose. Never accept stock tips without investigation. And on how to spot a looming crash: “When every taxi driver begins chatting about the stock market or property values the moment you get into his cab, you know trouble is brewing.”
    Beckman continued to write. Into the Upwave (1988), reviewed as “tosh of a very high order”; Crashes (1988), a historical survey of bursted bubbles from tulip madnesss onwards; and Powertiming (1992), an explanation of his method of of anticipating market turns. In 1996 came Housequake, in which he again prophesied years of property disaster and stated: “There will not be a property boom during the 1990s of any sort.” House prices have more than tripled since.
    Beckman enjoyed an opulent lifestyle in Monaco, where he based himself permanently from 1987.
    He is survived by his wife, Arlette.
    Bob Beckman, investment adviser, was born on August 25, 1934. He died of cancer on December 6, 2007, aged 73

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  2. The above comment appears to be copyright and copied word for word from The Times obituary for Bob Beckman.

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  3. Bob Beckman first made a name for himself in buying up scrap gold. President Nixon ended the direct convertibility of the dollar to gold in 1971. Bob was reported to have made a fortune from this.
    Beckman then forecast a low for the FT30 index at 140 and this cemented his name to the list of gurus.
    Bob who was a citizen of the United States gave up his citizenship in favour of the Cayman Islands.
    His fame never reached the heights of the early 70's as he moved to safer forms of investment: With the establishment of his Beckman Accumalator U.T. His other Biotec I.T. eventually did very well with multiple returns for his followers.

    Bob alway mentioned timing as the most important entry investment point. He lost this flair later in life as he may have sought to conserve his riches.

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  4. I enjoyed Beckman's books. His timing wasn't accurate to the year but his argument that people spend less in the first 50 years of any century due to economic downturns, and more during the latter 50 years was backed by sound historical data.

    It looks like this century will be no exception to the rule.

    The fact that Beckman made lots of money as an investment advisor is really a testament to his knowledge.

    Stephen

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  5. Hi Gerard,
    Usually I am not regular to read article on blogs, but I would like to say that this write-up very pressured me to check out and do it! Your writing taste has been surprised me. Thank you, quite nice article.

    jason
    RMP Property

    ReplyDelete

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