Why do the experts keep getting it wrong?
As you know I think that much of what we read in the press is misleading if not downright inaccurate.
The experts keep getting it wrong.
“In 2001, a study by Prakash Loungani an economist at the IMF, looked at the accuracy of economic forecasts throughout the 1990’s – both public sector and private sector -in theInternational Journal of Forecasting. He concluded that “the record of failure to predictrecessions is virtually unblemished”. As Tim Harford notes in the FT, in 2014 he repeated the exercise...
...staggeringly, he found that even in September 2008 – well after the demise of both Bear Stearns and Northern Rock, and the same month that Lehman Brothers collapsed – theconsensus among economists “remained that not a single economy would fall into recession in 2009”. (Source:MoneyWeek)
So, why do these incredibly intelligent people continue to make false assumptions and why do humans in general have an overly pessimistic world view?
If you haven’t read Factfulness by Dr Hans Rosling, I urge you to order a copy now. Bill Gates thinks it is one of the most important books he has ever read. But what does he know?!I’m suggesting you read it – what more do you want?!
The book will dispel many of the myths that have become conventional wisdom and make you question not only what you read but how you think. As he says:
“Why experts get it wrong
You probably know the saying “give a child a hammer and everything looks like a nail.”
When you have valuable expertise, you like to see it put to use. Sometimes an expert will look around for ways in which their hard-won knowledge and skills can be applicable beyondwhere it’s actually useful. So, people with math skills can get fixated on the numbers. Climate activists argue for solar everywhere. And physicians promote medical treatment where prevention would be better.
Great knowledge can interfere with an expert’s ability to see what actually works. All these solutions are great for solving some problem, but none of them will solve all problems. It is better to look at the world in lots of different ways.”
With regards to property consider the pessimists’ favourite indicator – the house price to earnings ratio. Now it’s true that history has proven that whenever the market has crashed the ratio has been above 10.
Unfortunately, this simple fact has been bastardised & mangled by conventional wisdom so that the belief is that whenever the ratio is above 10 the market will crash. It sounds the same but actually that is very different.
Because there are far, far, far more examples of the ratio being above 10 and the market not paying the slightest bit of notice. For example, in 2002, the house price to earnings ratio in several parts of London was 10.4.
Did the market, fall or stall? No, it went up massively for 5 years. 5 YEARS! It is a woeful indicator, yet you will read about it in the press the whole time.
Do you want more proof? Very well, as it’s you, I will oblige.
Since 1999 UK house prices have increased by 200% - with some areas like prime central London seeing much higher price increases. Meanwhile, the average wage has increased from c. £19,000 to £28,184. In other words, the average wage has increased by only 50%.
Would you say that this makes the house price to earnings ratio a good indicator of what will happen to prices?
No, clearly not. Yet this and other misguided “facts” are what the “experts” in the press drone on about.
Consequently, please be very wary about what you read or, indeed, what you hear from friends and colleagues. Their intentions are good and well-meaning, but the chances are they will just be regurgitating what they have heard in the news.
And I know you have experienced this yourself.
As one lady said to me: “I dread Monday mornings because that is when I get calls from clients questioning why they haven’t been invested in the latest (insert fad here)” or as others have told me “when clients have had dinner parties with ’knowledgeable’ friends theyinvariably think that the tax structuring we have done should be completely changed becausetheir friends have said so”... or they have read about it in the Mail on Sunday!
So, if you or your clients are planning to acquire a property in London would it be a bad idea to seek better information to give you an edge over other buyers, sellers and the estate agents?
If you think a copy of my book, The Insider’s Guide To Acquiring Luxury Property in London, might provide some useful information, then simply email me or call +44 (0) 2034578855 to request a complimentary copy.