A few years ago I was driving in the country and came across a ranch with sheep as far as the eye could see. Well, my wife has always wanted a sheep so I pulled over and found the shepherd who was in the field with his flock. I mentioned to him how my wife always wanted a sheep and we struck a friendly wager. I bet him if I could guess how many sheep were in his flock I would get to pick one and take it with me. He looked at me, looked at all his sheep, looked one more time at me and said to go for it.
Now, I have always been good with numbers and am very analytical. I spent some time looking over his flock and finally declared he had 2,458 sheep in his flock. Once again he looked at me, looked at his sheep, and then looked back at me. He calmly said I was right and to go ahead and pick one out. I wandered into the flock, carefully inspected each one and finally made my selection.
After I loaded my pick of the litter into my car the farmer approached me and asked if we could once again make a friendly wager. Well, I was feeling pretty confident so I agreed. If he could guess my profession he would get back the sheep I had selected. I looked at what I was wearing, took a look at my car, and told him to go for it as I was feeling very confident. Without missing a beat he mentioned I was a stockbroker. I just stood there, blinking, and wondering what just happened. After what felt like forever I asked him how he knew. As he took back his sheep he mentioned that of the 2,458 sheep in his flock I managed to pick the only dog!
Alright, so this never really happened to me. I love the joke because no matter how much math you throw at analyzing an individual investment the odds of it being right are slim. The Michael Burry’s of the world are few and far between. Every year Bloomberg does a survey of the “best” forecasters for their yearly predictions. I did not see the data for 2015, however, for 2014 of the 70+ they surveyed all were completely wrong with their predictions halfway through the year. Even Goldman Sachs, who many revere as the smartest of the bunch, said nearly every one of their predictions for 2016 were wrong and this was before January had even ended!
The better predictor of success is controlling fees and minimizing taxes as much as legally possible. Often time when we spend more we get a better product, such as cars, vacations, restaurants and clothes. The complete opposite is true when it comes to investing as spending less results in a better product and result. So, enjoy your own BMWs but be cautious when paying for investment services as the only BMW may be the one you bought your stockbroker who doesn’t know the difference between a sheep and a dog.