On Wall Street, information is power. Investors increase their potential to profit by knowing more than the person on the other side of each transaction. But some unscrupulous folks don’t stop at simply gathering better intelligence. They aim to cash in by spreading lies that mislead and misdirect ordinary investors like you — making themselves rich at your expense. With persistence and a little know-how, you can protect yourself, your friends and family, and your money from making these kinds of costly mistakes.
“If experience is necessary for being President, name a political topic I can’t master in one hour under the tutelage of experts.”
— Scott Adams, creator of Dilbert, July 28, 2016.
We all think we’re smart. Really smart. Smarter than average. Multiple surveys report that a majority of Americans — 65%, according to one 2018 research paper covering two different surveys of more than 2,000 people each — believe they possess above-average intelligence, even though that’s statistically impossible. (After all, only 50% of anything can ever be above average.)
Even Scott Adams, who’s built his career on a comic strip that regularly mocks pointy-headed bosses for thinking they know more than they do, has fallen prey to this fallacy. Note the additional assumption in Adams’s argument above: An inexperienced person would be willing to listen to and learn from experts. Alas, that doesn’t always prove true.
Experience and knowledge equal better information
We’ve talked about how Wall Street thrives on information advantages — knowing more than the person on the other side of a trade in order to make money at their expense. Misinformation can prey on this practice by assuring you that you know more than people who’ve spent hours, months, years, entire lifetimes studying a given subject — that your gut beats their brains.
Spend enough time investing, and you’ll probably see some pitch or other talking about an amazing opportunity that all the experts are missing out on. You might even detect hints of a sneer whenever those experts come up. From the investing decisions we make to the plotlines of countless 1980s summer-camp comedy movies, we Americans like to believe that ordinary “little guys” are always, by their very nature, morally superior to stuffy, stuck-up “elites.” It’s true that higher IQs, credentials, or social class don’t automatically equate to good ideas or good actions. But they don’t guarantee bad ones, either.
And yes, small investors have advantages large ones don’t — but they come from outside factors, not any inner qualities of being a small investor. Large investors need to pursue large opportunities to grow their vast sums of money. Small investors can score profits in much more modest businesses that would barely register as a blip in a superinvestor’s holdings. (Just ask Warren Buffett.) But again, small investors don’t have that edge because they’re better or smarter than big ones. They’re just … smaller.
Terminate your prejudices
Arnold Schwarzenegger — bodybuilder, movie star, and former governor of California — has a checkered past. He drew notoriety during his bodybuilding days as much for his extravagant boasting as his chiseled physique. He broke up his marriage by admitting he’d fathered a child with his family’s housekeeper, an improper relationship on multiple levels. And he’s taken at least some responsibility for the numerous, credible allegations of sexual harrassment leveled against him.
But Schwarzenegger’s also consistently displayed respect and admiration for hard work and hard-won experience, in his own life and in others, as a 2020 comment he left on Facebook demonstrates. (For bonus enjoyment, read the following aloud in your best Schwarzenegger impression.)
I always say you should know your strengths and listen to the experts. If you want to learn about building biceps, listen to me, because I’ve spent my life studying how to get the perfect peak and I have been called the greatest bodybuilder of all time. We all have different specialties.
Dr. Fauci and all of the virologists and epidemiologists and doctors have studied diseases and vaccines for their entire lives, so I listen to them and I urge you to do the same. None of us are going to learn more than them by watching a few hours of videos. It’s simple: if your house in on fire, you don’t go on YouTube, you call the damn fire department. If you have a heart attack, you don’t check your Facebook group, you call an ambulance. If 9 doctors tell you you have cancer and need to treat it or you will die, and 1 doctor says the cancer will disappear, you should always side with the 9. In this case, virtually all of the real experts around the world are telling us the vaccine is safe and some people on Facebook are saying it isn’t.
In general, I think if the circle of people you trust gets smaller and smaller and you find yourself more and more isolated, it should be a warning sign that you’re going down a rabbit hole of misinformation. Some people say it is weak to listen to experts. That’s bogus. It takes strength to admit you don’t know everything. Weakness is thinking you don’t need expert advice and only listening to sources that confirm what you want to believe.
Experts know more than we do because they’ve done more work than we have. Dismissing any experts, anywhere, automatically, won’t help you make better decisions. Instead, use the following questions to figure out how much you should listen to or trust any particular expert.
1. How much experience do they have?
How many years have they studied their chosen field? Do they hold a high position in academia, business, or government?
2. What’s their track record?
Do they have a history of making correct judgments or accurate findings? This doesn’t guarantee they’ll always be correct, but if they’ve made a lot of bad calls in the past, knowing that can help you evaluate their latest opinion.
3. What’s their reputation?
Are they respected and admired by others in their field — even or especially if their colleagues sometimes disagree with their ideas or findings?
4. Does their argument seem sound?
History unfortunately abounds with well-credentialed experts with a record of sound research, who nonetheless let personal bias lead them toward incorrect conclusions. Once you’ve established an expert’s bona fides, look carefully at what they’re actually saying to ensure it’s founded on sound evidence and realistic assumptions.
Does the argument embrace common misconceptions or stereotypes? Does it too conveniently support an idea that just feels good to you? What kind of data supports the argument?
5. How does their advice align with that of other respected experts?
Experts don’t always agree, and trustworthy, intelligent people can look at the same data and reach different conclusions. Not all discoveries get immediately embraced, even if further study later proves them true. But if your expert’s advice seems wildly out of step with the current consensus, take a harder look at the evidence they use to support it.
6. Is their experience relevant to the subject at hand?
You wouldn’t ask a heart surgeon to fix your leaky plumbing, and you wouldn’t ask a Supreme Court justice to build a rocket engine. Credentials in one field don’t always translate to another. Is this expert weighing in on a subject in which they truly have expertise?
7. What, if anything, does the expert have to gain or lose here?
Andrew Wakefield gained fame when he published a paper in a prestigious medical journal purporting to show a link between childhood autism and a particular kind of vaccine against measles, mumps, and rubella. But later investigation showed that he had numerous conflicts of interest — including having filed a patent for his own competing vaccine, which would have benefited if patients abandoned the treatment his paper attacked.
The medical journal retracted Wakfield’s paper, and he ultimately lost his medical license. Doctors aren’t sure what causes the wide spectrum of autism-related differences, but they’re confident that vaccines aren’t a factor. Unfortunately, the misinformation Wakefield spread persists to this day.
Any piece of information that looks down on experts as a group — or does the same for any other overall group of people — may not deserve your trust. If you truly want to become smarter than average, start by learning from people with more firsthand knowledge and experience than you.
7 Investor Tools to Fight Misinformation