from Amazon
Wednesday, January 19, 2011
Reader Mail of the Day: Financial amateurs
This piece is based around the fact that many bloggers, instead of financial analysts, have lately been found to be more accurate at predicting the success of Apple. More broadly, though, it reminded me of how sabermetrics have taken hold, through the come-one-come-all nature of the Internet and the openness online-only researchers have to getting accurate information, even if it means some anonymous commenter offers valuable feedback. Money quote:
“[Wall Street analyst Shaw] Wu cites regulation and scrutiny [to explain analysts’ conservative forecasts] but that does not prevent one from being intellectually honest. What matters is not avoidance of conservatism or exuberance. What matters is rigor; being impartial to everything but the data. One must keep one’s convictions in proportion to one’s valid evidence not to regulatory oversight (which is there to prevent abuse, not balance).
“[Wall Street analyst Alexander] Peterc cites pressure from clients (hence the obligations of employment). That implies that professionals are under pressure to say something other than what they believe, which is a sinister form of self-censorship. Not only is that less valuable as an opinion, but it’s likely to be less accurate as well.
“But more fundamentally, the issue for the pros is that the institution of analysis risks becoming de-professionalized. In the same way many jobs that took specialized skills became commoditized by the use of new tools or access to information, the era of DIY financial analysis is dawning.
“The difference between professionalism and amateurism isn’t whether one is well paid or not or whether one is anointed with credentials. It’s whether one isconsistently out-performing randomness (note emphasis on the consistency).”
While the author of this post says “the institution of analysis risks becoming de-professionalized,” and that seems to come with a negative connotation, I’d say the work done outside of the formal baseball institution proves it’s not so much a risk as an opportunity for growth and rewards.
NaOH
http://www.asymco.com/2011/01/19/an-new-era-in-financial-analysis-is-dawning/
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