Buffett, Giraffe, or Expert?
How to sift through the avalanche of year-end market commentary and actually find some financial wisdom.
It’s that time of year again.
Financial advisors and “experts” are busy writing about what happened in the markets in 2024 and making predictions for 2025.
The first thing we should point out is that making accurate short-term market predictions is very challenging—and unnecessary.
Long-term returns are far more important to the long-term investor.
Viewing long-term investing through a short-term lens is misguided and can lead to overreactions, less money, and more stress.
Why do they do it?
Philip Tetlock and Dan Gardner sum it up well in their book, Super Forecasting:
Open up any newspaper, watch any TV news show, and you find experts who forecast what’s coming. . . With few exceptions, they are not in front of the cameras because they possess any proven skill at forecasting. Accuracy is seldom even mentioned. Old forecasts are like old news—soon forgotten—and pundits are almost never asked to reconcile what they said with what actually happened. The one undeniable talent that talking heads have is their skill at telling a compelling story with conviction, and that is enough. Many have become wealthy peddling forecasting of untested value to corporate executives, government officials, and ordinary people who would never think of swallowing medicine of unknown efficacy and safety but who routinely pay for forecasts that are as dubious as elixirs sold from the back of a wagon.
Buffett, Giraffe, or “Expert?”
Just for fun, we have three quotes below. Your task is to guess which is a recent commentary from a random financial “expert,” which was generated by chatGPT, and which was written by Warren Buffett (considered one of the world’s greatest investors).
And what’s with the giraffe?
AI giraffing is a term used to describe how AI can get things wrong due to mining data that is overrepresentative of what occurs in the real world. AI programs commonly identify images as giraffes even though it might just be a tree in the rough shape of a giraffe. This is presumably due to far more images of giraffes being posted than actually exist and AI thinks they are more common than they are.
When you ask AI for a stock market forecast, the data mining will detect far more attention seeking commentary than well-reasoned, long-term wisdom.
So, give it a shot. Can you identify which is Buffett, giraffe (i.e., AI), or “expert?”
Quote 1:
The normalization of the U.S. Treasury yield curve this week signals recession odds are increasing. A reduction in stock holdings and long exposure may be appropriate, based on past cycles.
Gold's future may be brighter than conventional wisdom believes, continuing its 2024 uptrend, based on its hedging characteristics against economic downturns and future inflation expectations.
Quote 2:
The S&P 500 is projected to rise by approximately 8% to 6,550, driven by factors such as anticipated deregulation and advancements in artificial intelligence.
Conversely, there are warnings about possible market corrections in early 2025. Indicators like extreme investor optimism and high valuations suggest that a market downturn could be imminent.
Despite broader market concerns, certain sectors, particularly large-cap technology stocks, are expected to continue outperforming. The “Magnificent Seven”—Apple, Amazon, Alphabet, Meta Platforms, Microsoft, Nvidia, and Tesla—will maintain their strong performance due to factors like interest rate cuts and the ongoing AI boom.
Quote 3:
Since the basic game is so favorable, I believe it's a terrible mistake to try to dance in and out of it based upon the turn of tarot cards, the predictions of “experts” or the ebb and flow of business activity. The risks of being out of the game are huge compared to the risks of being in it.
So, how did you do?
Quote 1 is from an “expert” talking about what to expect and do in 2025. We could have randomly picked any expert for this or something similar.
Quote 2 is from our AI giraffe. Not surprisingly, this sounds a bit like our “expert.” And, make no mistake, much of what you read in the financial news or in the year-end letter from your investment advisor may have been written by AI.
Quote 3 is from a 2012 letter written by Warren Buffett. It’s notable that what Buffett wrote in 2012 is timeless advice and that he cautions against making the types of choices advocated by our “expert” or AI giraffe.
New Year’s Resolution
With the time for New Year’s resolutions right around the corner, we would strongly incourage you to consider and follow Buffett’s advice.
The immediate payoff for this is that as you align your investment perspective to match your investment goals—i.e., quit viewing long-term investing through a short-term lens—you will learn to quit stressing about what’s currently going on in the markets or what the “experts” are saying.
Doing so, in turn, will help you avoid making poor investment decisions based on costly overreactions.
Sometime down the road, you’ll realize that taking the long view will have resulted in having far more money—due to the power of compounding when you let the long-term averages play out—than you thought possible.
Happy Holidays,
Stuart & Sharon