Thursday, May 21, 2009

Benny Lee's theory : why Experts are Always Wrong

After banging on how bad he is twisting words (preceived value => value) to sweet talk naive public on a course he promotes, this article is about the good side of Benny Lee.

In the beginning of his FREE seminar, he listed out a series of expert's predictions on what stocks to buy and sell.  Then he shows how badly ALL those predictions fail miserably.

Although one of the reasons he uses is that Fundamental Analysis is useless which malpf disagrees and claims that he got it ALL WRONG where the REAL Fundamental does not change over a short period of time.  It takes a paradigm shift to affect a business's fundamental.  So News like these are NOT part of True Fundamental Analysis.

However, Benny also said it clearly that why an expert made a wrong prediction - because the expert adds his own Opinion when performing the analysis.

Company A is granted with Project X is a fact.  Company A is 'going to' earn Y amount of revenue could also become fact.  But how these news will affect Company A's stock price from RM 2.12 to RM 2.54 is an Opinion!  This is because in his calculation, he will have to make a lot of assumptions on the posible future finance data and those numbers are very opinionated ( different from one analyst to another ).

People who worship Technical Analysis may have heard of Mr. Market's story - that you must follow Mr. Market and not trying to out beat him - by using Technical Analysis ofcourse.  And this concept of Opinion from Benny Lee stick very well to Mr. Market's story.  Also one of the very good reasons why more people earn money using Technical than using their own Opinion = speculation.

Malpf also share that there is a Science part in investment but there is also an Art part.  The Art part malpf talks about is the same as the Opinion Benny talks about.

Some older readers also know the very specific step by step how to evaluate the True value of a business and therefore find out your very personal target buying price.  There are only 2 critically important numbers in that method : EPS and PE.  PE is the number that actually represent Opinion.

However, there is one distinct difference.  Benny claims that Opinion is bad, not reliable and therefore in order to earn money from stock market, you should rely on Technical and Technical never lies (Mr. Market story again)!  

Malpf preaches that Opinion can be dangerous.  But the more you know the better opinion you form.  The more you practise making opinion, analyse the result of your previous opinion and form better ones next time is the whole important process.  At the very end, be it Fundamental or Technical Analysis or any other methods, it all goes back to Opinion - the Art part in investment.  Which is also the part that distinctly draw a difference among all of us.  The tools we use may be the same but we will ALWAYS reach a slightly different opinion eventually.

This bring the end of this article to Soros story again.  Although Soros has a strong team behind him to earn money consistently using technical analysis.  But when he forms an Opinion about certain situation, his opinion will Overwrite ALL other opposing signals and it is this type of charismatic move brings him to what he is today.

So who can resist not forming his own opinion hoping to become the top of the world one day ?