What can LeBron James teach us about financial experts forecasting the future?
I’m probably in the minority of those of us who participate in this blog as a fan of the National Basketball Association, so some of this information may be new to some of you. That said, if you have picked up a paper, watched a news broadcast or have even a fleeting interest in sports, you have probably at least heard LeBron James’ name over the last several weeks.
For the uninitiated, LeBron James is one of the top players in the NBA. As of the end of this season, he’d spent his entire career playing for his hometown Cleveland Cavaliers. On July 1st, LeBron became an unrestricted free agent and could choose to stay at home or test the waters in a new market.
When did the media start forecasting where he would go? Last week? Last month? Actually, the first news stories speculating about his future began as early as 2008. Things built to a roar over the last basketball season and ended in full blown mayhem over the last month. The event culminated in LeBron dictating terms to ESPN for a one hour prime time TV special last Thursday in which he announced his decision to leave home for the warm air and blue waters of Miami, Florida.
The point to all of this is how important it was for someone, anyone to break the story of where he was going in advance of the announcement. Reporters and other so-called “experts” postured and positioned to be first to break the story and reap the rewards if they did. If you were to believe each report, it was all but guaranteed by these experts that LeBron was to sign with six different teams at any given time.
Did these reporters really have trusted sources that could verify each and every one of these scenarios? No, they were placing a bet. The bet was that they’d leak a scenario based on flimsy information and, if proven right, would claim that they broke the news first.
So what does all of this teach us about reporting on the markets? Part of the 24 hour news, sports and entertainment cycle that we all live with are lots of business writers, economists and other experts that benefit greatly if their forecasts end up paying off. Like with the sports reporters, it can mean book deals, lucrative media contracts and other such offers that can certainly boost the lifestyle of said “expert”. These industry incentives have shifted and are now there to encourage guessing or betting on the correct forecast over focusing on accuracy.
In the end, someone is going to be right, but can you pick that person in advance and would you be comfortable enough if you thought you could to risk your savings on that bet? For most of us, the answer is no, yet many investors choose that path on a daily basis.
The race for accuracy has been replaced by the race to be first. To sports fans, the misinformation that results is a minor annoyance as we watch egos pick which city will earn the right to pay players millions of dollars each season. But with investing, it’s a dangerous game that can toy with investors’ emotions. Rise above the fray, have a concrete plan in place, stick to it and tune out the noise.
Chip Workman, CFP®