Millions of people and businesses rely on the advice of stock brokers every day. These professionals are trained to help people make smart decisions with their money.
Unfortunately, they’re probably useless.
It’s all about peace of mind
We’re creatures of habit. Unless you’ve dedicated yourself to being a lifelong traveler (and props to you if you have!), you’ve probably got a nice routine going with your day-to-day life.
And it makes sense: most surprises aren’t pleasant, especially financial ones. That’s why people trust stock brokers to give them sound tips for their retirement or other investment goals.
But psychologist Daniel Kahneman was skeptical of claims made by brokerage firms. Could a broker really help people make more money on the market? Or even better, prevent people from losing money during bad times?
Getting paid for guesswork
Kahneman decided to find out if brokers were worth the time and money. He spent weeks going through all sorts of information. Price reports, analyst opinions, performance data from brokerage firms, you name it.
He found that there is absolutely no evidence to support stock brokers’ claims that they actually do make a difference. Sure, some firms did well in certain years, but they were just as likely to perform poorly using the same approaches. In fact, Kahneman’s research showed that a stock was more likely to go up after a broker SOLD it.
Brokers just get lucky sometimes. And when things go well, it’s enough to give people a false sense of security. But it’s foolish to think that you can actually beat the market. In Kahneman’s own words, “The results resembled what you would expect from a dice-rolling contest, not a game of skill.”
Players and brokers, two peas in a pod
If the big wigs on Wall Street can’t beat the market, what makes them different from you and me? I mean, really: you’ve got just as much of a shot at winning the Mega Fortune jackpot as the next guy. Gamblers love to try and beat the house, but we know the odds are against us.
And at least we don’t pretend to know when we’re going to win – and charge people for the privilege!
Now I’m not saying that you can build your retirement on the slots. Gambling is entertainment; investing should be taken much more seriously. But if you want to try and get lucky, it’s a heck of a lot more fun at an online casino than on Wall Street.