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Experts vs Investors: Who Has It Right?

Buffett

With the stock market now guided more than ever by fears of a global trade war, tax cuts that coincide with big government spending, the bogeyman of inflation and interest rate hikes, economists seem to rule the day, so it’s a great time to reflect back on wise words from legendary investor Warren Buffett, who has never been willing to give economists the time of day.

That’s exactly what CNBC did recently, digging up a 2016 interview with Buffett that is more than appropriate right now—a time when market volatility suggests that investors really don’t know who to listen to.

"I don't pay any attention to what economists say, frankly," Buffett said during that interview. "Well, think about it. You have all these economists with 160 IQs that spend their life studying it, can you name me one super-wealthy economist that's ever made money out of securities? No."

"If you look at the whole history of [economists], they don't make a lot of money buying and selling stocks, but people who buy and sell stocks listen to them. I have a little trouble with that," Buffett said.

By way of example, Buffett explains how economist John Maynard Keynes experienced heavy trading losses in the 1920s and 1930s because he was focused on economic forecasts and things like credit cycle predictions. It was until he started following a value philosophy, focusing on well-run company stocks over the long term, that he started making money investing. That is exactly Buffett’s strategy.

Indeed, Buffett won’t be paying attention to the headlines, either. One day trade war fears tank the market, and the next day those same markets feel that fears have eased—and then it’s simply wash, rinse, repeat for months. All the while, Buffett is focusing on companies that are run well and have fundamental upside, while ignoring the ups and downs of headline-mania that creates artificial price fluctuations. Related: Ethereum Blockchain Tops Bitcoin's In Latest Study

Buffett is in this for the long-term, and that’s why he’s worth over $80 billion.

The ideal time to hold an investment, according to Buffett, is “for ever”—that means for better or worse.

According to Buffett, an investor had only one decision to make: “All you had to do was figure that America was going to do well over time.”

Nothing scared him away, from World War II, when everyone ran to gold, to today’s crises in the Middle East, from Syria to Yemen, and fears surrounding the potential fallout of the U.S.-withdrawal from the nuclear deal with Iran. For Buffett, these are all minor blips on the radar, as SafeHaven noted in an earlier article.

And at a time when economists are becoming more and more prominent, Buffett isn’t the only one who isn’t listening: the U.S. president isn’t listening, either. Trump is not listening to scores of economists who warn of economic collapse if Washington continues to pursue what may lead to a full-blown global trade war.

Writing for Quartz back in 2016, one economist noted that they’re simply not trusted anymore and “there’s been a resounding rejection of economic advice from experts in the field”.

Look no further than the Brexit vote that went through despite severe warnings from economists, or the American Democrats’ $15 national minimum wage, among other things.

Or, as Howard Reed recently noted in Prospect, contemporary economics has been less than successful, and the public realized that economists were “clueless” 10 years ago, when the global economy crashed.

And no one should be listening, Reed says. It’s not just a question of needing more “tweaks” to the theoretical system, either. What we need is total “deconomics”, “which decontaminates the discipline, deconstructs its theoretical heart and rebuilds from first principles”. 

By Tom Kool for Safehaven.com

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