Relying on Expert opinions

In general on this blog, I have not been very kind to stock market experts ( pundits,opinion baazs), you can read through some of my previous outbursts here

In late 1980s, psychologist Philip Tetlock began an important research projects of the past three decades, studying how experts make predictions, who gets things right, and who gets things wrong. His inspiration came from watching experts predict the future of the Soviet Union — an event that very, very few got right. Notably, most of those who misjudged the event wouldn’t even admit that they got it wrong. The book draws one big conclusion: Most expert predictions are the equivalent of random guesses.

The stock market is a perfect to see this unfolding every day, In this post I am showing you just one example but the place is full of such pundits

Last year around April 2016, India’s first e-commerce company was planning to list on Indian bourses (previously makemytrip and others have also listed but overseas) , The overwhelming opinion  from expert reviewers of IPO was that issue from Infibeam was untouchable

Let’s look at some of them

Some claimed, Infibeam is unsuitable for retail investors

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more

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While few pointed out that this issue is for only for risk savvy investors

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Others were ruthless in their analysis

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when in chorus experts go at great length in using flamboyant words such as extremely negative..

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Since all pundits were against the issue it got a luke warm response

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Fast forward to 2017, the facts are different from what experts thought 🙂

Aren’t you surprised ?

The company has delivered two of the best quarters in last 4-5 years

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and  the stock  has sky rocketed up 200% from its listing price

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Especially  in a market which has gone no were from May 2016

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I will end here with a quote from 25iq blog

“The predictions of the average expert were ‘little better than guessing,’ which is a polite way to say that ‘they were roughly as accurate as a dart-throwing chimpanzee.’ When confronted with the evidence of their futility, the experts did what the rest of us do: they put up their psychological defense shields. They noted that they almost called it right, or that their prediction carried so much weight that it affected the outcome, or that they were correct about the prediction but simply off on timing.”

 

Note – This post is not written to malign IPO reviewers , This is to showcase that we as investors should take forecast with a spoon of salt

6 comments

  1. Tech companies unfolding saga is often a misnomer for most of the analytical pundits because there is nothing to show in terms of hard core track record. But in a fast changing tech world, things undergo change very fast. Did somebody imagine that there would be demonetization in India and that would compel people to use e-wallets, like PayTm, etc. Suddenly there is a huge rush and valuation for these kind of companies. I think extremely difficult to imagine what will happen to these kind of companies. Sometimes it feels that there is no harm in taking some small bet on these kind of companies. I remember (loosely) that after listing of ‘8K miles’ on Indian bourses, it continued to hit upper circuit day after day for more than 50 or 60 trading sessions (figures may not correct but the essence is correct).

  2. Vivek,

    While I agree with the overall message of not giving too much weight to expert opinions, I’m sorry but using Infibeam as an example is extremely premature.
    As you mentioned, Infibeam’s IPO came out in April 2016 and its barely been 9 months – it absolutely doesn’t matter what the company has done in 2 quarters – for any long term investor, we need to look at a 3-5-7 year period.

    Your post doesn’t mention anything about the fundamentals of the company and whether this performance is sustainable in the future. One might argue that this performance won’t sustain and the stock will go back to it’s listing price in next few years.
    Even if the stock price remains exactly here for 2 years or so – I’d still get your point as the company would have delivered good returns over a 3 year period.

    So in my view, the overall message is fine but a pretty poor example for any long term oriented equity investor.

    • Vivek Bothra says:

      Thanks Gujrot for your views.There are several other examples as well. I choose Infibeam due to sheer negativism on start ups and e-commerce firms.

  3. Aravind says:

    I totally agree. You forgot the biggest piece of news. When asked on the floor of BSE RJ the whale said that he is waiting for Flipkart to list and short it and said that e-comm cannot sustain as a business model. I can clearly remember those words he said to BTVi and thats the reason the street developed cold feet and moved away from infibeam. Infact this was the only 0 debt, profitable e-comm website even at that time, just breaking even. I totally agree with you on expert opinion.

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