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Be careful what financial guru you believe

Or Financial Superstition?

Investor gurus constantly seek to be heard, building up their reputations, sometimes also seeking customers. Newspapers, magazines, blogs, newletters and journals are full of their financial advice. Who to believe?

According to one advisor who writes for The New York Times, take them all with a grain of salt: It can be “dangerous” to take “what’s meant to be general financial information and acting on it, without first taking the time to figure out if it applies to your particular situation.”

He points out that many of them are reasonably well informed about how the stock market is likely to perform, or the bond market, or the price of gold. But they are not informed about your situation or your particular needs. They provide generic advice, information, even useful tips at times. “As good as many of them are at providing a filter for information, and even providing general rules of thumb, you are the only one who can figure out how it applies to your life.” (See “Ignore Generic Financial Advice (Except This Post).”)

Then, of course, there is the problem of figuring out which gurus really do have their fingers on the pulse of the market? Even if we had good information available to us about their track records, there is no way we can tell if they are right this time.

Worse, we are likely to be swayed into believing them because they express what we suspect is true. They agree with what we think. As a result, their power to influence comes less from the fact that they are experts but from how they echo or amplify or own half-formed convictions or fears.

Essentially it boils down to a form of superstition, not much different from the horoscopes one can also find in the daily paper. Horoscopes, too, can be useful. They can get one to think about potential scenarios for the day ahead. They can provoke a reflective process, but they are not to be trusted as reliable guides.

There is no substitute for being mindful and for having conversations with others. That helps you become aware of how your situation is different from others. It adds to the store of ideas about potential trends, so you have a variety of perspectives. And it leaves you with your own decision to make.

That may make us anxious and uncertain, but the fact of the matter is that we really are taking risks. Anxiety reminds us that we are in uncharted territory, always at the edge of the unknown.

More from Ken Eisold Ph.D.
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