Domain Expertise
Domain Expertise
We rely on opinions from experts. When we need medical advice, we seek out medical experts. If we have car problems, we turn to an automotive expert. In any given vertical, there are experts upon whom we rely for guidance. Still, there are limitations where no amount of expertise matters and outcomes cannot be accurately forecast. Nowhere is this more true than in a liquid and efficient marketplace.
Throughout the history of markets, investors have sought out oracles. Someone with some level of insight the rest of us lack. Someone we can turn to with a faith in their ability to navigate the complexities of markets. Someone who can tell us how to invest our money so that it grows faster than the rate of risk free rates.
Going back the last forty or so years, names such as Warren Buffett, Peter Lynch, Elaine Garzarelli, Abbey Joseph Cohen, and Michael Burry have all, at one time, been crowned experts in forecasting markets. The critical words in that last sentence being, one time. None have consistently been correct. In fact, some of them have only been right once, but in the world of market forecasting, you just need to be right once to achieve rockstar status.
There is comfort in acknowledging expertise exists. We sleep better at night knowing a medical expert is there when we’re sick. When the HVAC guy shows up to fix our broken air conditioning during a string of ninety degree days, we breathe a sigh of relief. The time those people dedicated to mastering their respective domain means we don’t have to learn what antibiotics are warranted for varying infections. We don’t have to understand what happens after we set our thermostat at a specific temperature. Time not spent learning those things is time we can spend pursuing other interests. The challenge; however, is when we conflate expertise with predictive ability.
Many of us have an urge to believe in someone or something. The fact that outcomes can be accurately forecast in certain fields leads us to believe that outcomes can be accurately forecast in all fields. Sadly, that isn’t the case. Or maybe it’s not sad.
One can argue the beauty of an efficient and liquid market is that no one knows how things will turn out. For some, that may be scary. For others, it assures a fair playing field where no one person has an advantage over anyone else. Everyone has an equal chance at being right and that’s what ultimately facilitates liquidity. If we thought the game was fixed or that only a few anointed wizards knew what would happen next, we simply wouldn’t participate.
Special Projects writer Josh Fabian contributed to this article.
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