From the Archives: Getting Torched By Expert Opinion

Barry Ritholtz has posted a 5 minute clip of some of Ben Bernanke’s public comments between 2005-2007 on the housing market and the broader economy.  The point of me posting this is not to say that Bernanke is a complete moron because I have little doubt that he is one of the brightest financial minds in the country.  However, talk about being dead wrong!  If you relied on these opinions in order to make investment decisions, you likely got torched.  If you can’t rely on expert opinion when making investment decisions, then what options do you have?

This highlights the value of trend-following systems.   Trend following requires zero reliance on expert opinion; it simply allows the investor to adapt to whatever trends the market offers, whether or not experts expected things to play out in a given way.  With trend following, you’ll have plenty of losing trades, but you’ll also avoid sitting in losing trades for long periods of time.  Furthermore, systematic trend-following has an excellent track record (see here and here.)  Trend following allows you to cut your losses short and to hold on to your winners.  Frequently, the strongest trends end up being very different from what even the brightest experts predicted.

—-this article originally appeared 2/11/2010.  Well, heck, if you can’t trust Ben Bernanke, who can you trust?  The answer should be obvious: follow the price trend and forget about the random guessing of experts.

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