Experts Get It Wrong…Again

If you have clients that are influenced by experts’ Buy/Sell opinions and price targets they set, you will want to share this example with them.

buy-20clipart-buy-mdOn July 31, 2015 Citi upgraded the stock of GoPro to “Buy” with a price target of $90/share. (See Story) That represented close to a 50% premium to where the stock was trading at the time. To any investor this means a significant opportunity to make money, much more than you could make in the S&P 500 or any mutual fund. And in looking at the reasons behind such a bullish outlook, Citi referred to “mega trends”…whatever that means. Hey, it has the word “mega” in it, so it must be good.


SellFast forward to Dec 11, 2015 (just five months later), Citi downgraded the stock of GoPro to “Neutral” (which is another word for “sell” without offending the company) with the stock trading at $19/share. (See Story) So they tell you to buy it at $63 and basically to sell it at $19.  For investors following Citi’s “expertise”, they lost 70%.  If your goal was to reap tax losses, mission accomplished.  Otherwise, it was a very costly mistake.  This recommendation results in “buy high, sell low”, which is the optimal strategy for losing money.

To Citi’s credit, they are taking the blame.  The analyst says “We were wrong.”  And studies show that analysts/economists and other forecasters are wrong roughly 50% of the time.  The problem is we don’t know which time they will be right until after the fact.

So do you really want your investment strategy based on expert predictions?  The argument may sound convincing, but at a 50% success rate, you might as well be playing War at the casino.