In his 1973 book A Random Walk Down Wall Street, Princeton economics professor Burton Malkiel performed an experiment wherein he modeled the performance of a hypothetical stock by charting the results of a random coin flip. If the stock landed on heads, he would chart the stock as moving up a point, but if the result was tails, he would chart the stock as moving down a point. After filling out a chart based on these random results, he would then take this “hypothetical stock” to an investment professional and ask them for their opinion of the future prospects of this stock based on the chart provided.
Invariably, the investment professional would come up with some sort of prognostication based on the chart in front of them: “this stock is in free fall, you should sell”, or “this stock is at the bottom of a cyclical range, you should buy”. These investment professionals were giving their opinion, as is their job, but they were missing the key facts of the experiment: that the past performance of this “stock”, and thus the future results, were completely random!
This is why, at Archetype, we focus on Evidence over Opinion. Opinions are a dime a dozen. Even when they are offered by the most credible of sources and based on facts, opinions are attempts to fill in the gaps that facts leave behind.
Unfortunately, as demonstrated by Professor Malkiel and evidenced far too often in our daily lives, opinions are often not worth more than the paper they are written on.
This is not to say that we don’t have opinions of our own here at Archetype. I for one have opinions on the relative performance of domestic versus international equities over the next ten years. But when it comes to our investment philosophy, we leave our opinions at the door and focus on our data-driven “Three Dials” approach. We focus on the evidence of our Momentum, Fundamental and Valuation indicators, and we let these facts drive our asset allocation decisions. Ultimately, opinions form the basis for a good dinner conversation, but evidence is the key to a sound long-term investment strategy.
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Disclaimer: Our intent in providing this material is purely for informational purposes, as of the date hereof, and may be subject to change without notice. This article does not intend to constitute accounting, legal, tax, or other professional advice. Visitors and readers should not act upon the content or information found here without first seeking appropriate advice from a trusted accountant, financial planner, lawyer or other professional.
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