Financial analysts thrive on people's faith in them
Analysts dismiss talk of 'hard landing' on mainland
South China Morning Post headline, March 4
The modern gods of omniscience have become so often quoted that even the boss told me the other day, "You know, I sometimes think we ought to have fewer of these 'analysts say' stories in the paper. They don't always say much."
Right on, boss, and, while we're at it, also fewer of those pictures of 100-yuan banknotes to illustrate China business stories. I know what one looks like now.
But analystibabble, yes - "While risks to the longer-term outlook remain, we continue to be cautiously optimistic on the investment horizon in view of positive factors that … blah, blah, blah."
It's a contagious speech infection spread by the annual hot-air talk shop in Davos, Switzerland.
Confession time. I myself spent almost 20 years as an investment analyst and the only redeeming circumstance I can offer is that I always struck out the words "cautiously optimistic" when I saw them in company reports submitted to me.
What, however, can you expect an analyst to say?
He knows that he does not have the crystal-ball insight with which you credit him but he also knows that he could never justify his salary if this truth were widely recognised.
He therefore pretends to insight with ambiguous or vague pronouncements.
Think about it. The pitch here is that you are paying for professional services.
If you are a teacher, for instance, the analyst's line is that he would not try to teach his own children.
He puts them in your school. You are a professional in that field.
Likewise, he argues, you should not try to invest your own money.
You have no expertise in his field and cannot succeed. Therefore you ought to entrust your investments to an investment professional.
The argument fails on the basis of a bad comparison. Your expertise lies in the practice of teaching, not of predicting exactly what your charges will do in later life.
Likewise, the investment professional knows how to open an investment account for you, buy bonds and stocks for that account, keep the books properly all around (you hope) and sell your investments again if you instruct him to do so.
But he does not know how those investments will perform any more than you know whether young Johnny will become a doctor or a dentist.
In fact he knows less than you do. You may have an inkling of what Johnny will do in later life, but with investment the known prospects are already reflected in the price of the investment and the analyst operates in the blind. He may recognise a good prospect. So does the share price, and it has invariably done so long before he has.
The skills the analyst can put at your service are thus largely technical alone. He cannot do much more for you than a bank teller does.
But is any teller paid as much as an investment analyst? Fat chance. To keep that salary and bonuses coming, the analyst must therefore create the illusion of great distinction.
He must make you believe that he has somehow been given a special telescope that will allow him to see the future and that this telescope is only available, in fact only visible, to people who have the word "analyst" stuck behind their names on their calling cards.
And do you know what the strangest thing about all this is?
It is that you fall for it every time. You really believe it. You want to believe it because you want your money to be safe, and all you require for your belief is that the person who gives you this assurance has a tie and jacket, a calling card and an office in a glassy office building.
Be honest now. Isn't it true?
The point is that when analysts tell me that they don't expect a hard landing in the mainland, I take it from them that they intend to fly there on a reputable airline that employs pilots who know how to get their aircraft back on the ground without jolting passengers too much.
And that's as far as it goes.