I love sports. And I love personal finance. So it’s no surprise that I often find myself comparing and contrasting the two. The other day I was watching a football game and started to think about how outlandish some sports commentators are. And of course that led me to think about stock analysts and some of the similarities there.
The main similarity that I kept coming back to is just how wrong both sports commentators and stock analysts are.
And just how weird it is that we don’t seem to notice or care! Why is this?!
Let’s dig in…
Am I really being fair to sports commentators and stock analysts?
Yes, sometimes sports commentators and stock analysts are right. And they are often trying their best. I grant that. But the issue really is that both are not right significantly more than chance would allow for.
In sports, this isn’t exactly well studied. But a simple Google search will lead to some pretty funny and ridiculously wrong sports predictions. And it’s not even just commentators. Even general managers and other team personnel get things wrong a lot.
In personal finance, this is studied and documented really well. Active stock investing underperforms passive index fund investing time and time again. Thus, again, stock analysts and experts are unable to reliably predict the stock market.
Meanwhile, any successful guests by either group is retrospectively taken as validation that these predictions work. And the failures are ignored.
So, what’s the point if these analyses don’t hold any water?
That’s what this really comes down to.
Sports in general is entertainment all around. But there can only be so many games in a day, month, or year. But sports are so popular. And there is a demand for more. So, in between games, people want to hear other “experts” talk about sports. To hear them talk about what has happened and what will happen.
This back and forth generates arguments, disagreements, and interest. And it’s all fun and games anyway!
So, we accept the hilarious fails that ensue. Other than our pride, there is no harm, no foul.
Now let’s compare to stock analysts
Stock analysts, whether working for a brokerage or in the media, openly offer up similar “hot takes” regarding the stock market. These tips often center around timing the market or picking individual stocks…key components of active investing. Which again has been shown to be inferior to passive investing approaches. You can find equally hilarious fails in finance predictions as you can in sports analysis.
But, just like sports, money is a popular – if poorly understood – topic. And these “hot tips” and analyses lend themselves to arguments, disagreements, and interest.
And it’s all fun and games anyway!
Wait a second…no it’s not! This is people’s futures. Their financial freedom. Their well-being and health. All of a sudden this seems a lot more dangerous.
So, why do we accept this?
The guise of academia
I’m not able to really pinpoint why it is, but stock analysis and those who deliver them are able to hide under the guise of academia. And that makes them seem a lot more legitimate, serious, and valid.
When it comes to sports, we just write it off as entertainment. Sports commentators are just making guesses. Sometimes educated and sometimes not. In reality, many are probably well researched. Especially as data mining and analytics have overtaken the sports world. Either way, we write it off as just for fun.
Conversely, we tend to feel that stock analysts are involved in a much more educated science. After all, there are college courses on the topic (actually there are for sports too…).
One reason for this may just be that the stock market seems so complicated. And most of us just really don’t understand it. But on the flip side, we all know sports. So it feels much easier to call “B.S.”
But what about sports betting?
As sports betting became legal in recent years, it has taken off like a boom. You can’t throw a rock at a sports stadium without seeing advertisements for sports books. And forget about watching a game on TV.
And all of a sudden, those harmless opinions from sports commentators seem a little more dangerous. Let’s say a bettor wages a significant amount of money on a bet that an analyst lists as a “sure thing.” And loses!
That’s not good.
But thank goodness there are disclaimers on all sites and apps and commercials and ads saying that this advice cannot guarantee or predict success…
Even then, my initial reaction differs between the two…but it shouldn’t
Even though I know that both sports betting and stock picking are speculation, my innate reaction to them differs.
Initially, my reaction to the bettor losing big based on bad expert advice from sports commentators is “too bad, they shouldn’t be betting.”
But when I really think about it, isn’t the stock analyst doing something very similar? Maybe even more nefarious given the veneer of academia that they layer on? Kind of seems like it…Especially if they are pushing an active investing strategy.
Good thing that all brokerage prospectuses and advertisements include warnings that this advice cannot guarantee or predict success…
Disclaimer: I am not saying that you absolutely should not use a financial advisor here. But I am saying you need to make sure that they are investing your money the right way and that you aren’t overpaying them. While not a necessity as you can invest successfully by yourself with a minimal time commitment, a good financial advisor looking out for you the right way and charging a fair amount can work well, especially if you wouldn’t otherwise be investing at all.
What’s my point here?
I’ve had some version of this topic on my list of potential post ideas for a long time. But I haven’t written anything until now. And I think this is because I still don’t have a great grasp on what I want to say. Even after I’ve written it!
This is a bit of meandering commentary on my thoughts.
I think back to before I began my plastic surgery education. And how trusting I would have been with a financial “expert” that I thought was treating my money and future financial freedom well. And many times, my trust would have been totally misplaced. My financial future would have been at risk.
But I would never consider placing my future financial well-being at risk based on a sports tip. And, the large majority of the population, would feel the same way.
Even though the two are effectively similar. A bad bet makes you lose big quickly. A bad investment can make you lose a lot slowly.
So I guess my point is just to beat the drum. And to say be careful.
Learning and being successful in personal finance is not hard. So educate yourself, build healthy habits, and you will reach financial freedom!
Here are some posts to help!
- How Much Is Enough Retirement Savings?
- The Simple Habits That Will Make You Financially Successful
- 3 Keys to Overcome the Financial Plateau of Latent Potential
What do you think? Are sports analysis and stock analysis similar? Why or why not? And why do they seem that way? Let me know in the comments below!