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LOOK WHO’S TALKING

Hansi Mehrotra
November 15, 2016

Good journalists do a great job of synthesizing different points of view into one coherent article, simplifying it for the reader in the process. Good articles quote experts, presenting a balanced view of different opinions. Ideally, the ideas should be more important than the authors.

However, when it comes to investment or financial planning advice, I see many more ‘listicles’ in which journalists list ‘x ways to get wealthy.’ Confession – I hate listicles. I think personal finance listicles are dangerous. I strongly recommend readers consider the qualifications, practice and experience of the author before acting on the advice in a media article.

Qualifications ensure some basic knowledge

Would you a trust a self-proclaimed doctor who hadn’t at least completed a MBBS degree? While anyone can gain knowledge by reading widely and deeply, how do we gauge the extent of their knowledge? Qualifications are signals that the person has not only read the requisite material but also understood enough to pass an independent and credible examination.

The fields of economics and investments are not quite hard sciences, certainly not as precise as physics, but they are being compared to biological ecosystems. These require study of math and psychology, along with a decent understanding of history. Of course, keen students could read on all these topics. However, the problem of signaling remains – how do we know what they know? More importantly, do they themselves know what they don’t know?

Unfortunately, the finance industry is younger than medicine; it’s also more varied. It hasn’t developed a globally standardized degree like MBBS as the foundation on which specializations can be built. So financial industry professionals have qualifications ranging from Chartered Accountant (CA), to Master/Doctor of Philosophy in Finance/Economics, to Chartered Financial Analyst (CFA) depending on what role they are in. There are also financial planning specific qualifications such as Certified Financial Planner (CFP) but these tend to be less globally consistent and rigorous than the others mentioned. In India, anyone can become a mutual fund distributor, or indeed investment adviser, by passing some basic National Institute of Securities Markets (NISM) exams.

Practice ensures continuing professional development

How do you feel about a doctor who qualified 30 years ago and doesn’t believe in continuing professional development? How would you know if they still believed that ulcers were caused by spicy food rather than by bacteria? This is less likely to happen if the doctor is in active practice as most licensing provisions include CPD requirements.

Similarly, if a finance professional qualified 30 years ago and hasn’t participated in continuing professional development, their thinking may be of out of date. Unfortunately, finance licensing provisions are not consistent globally. In India, the CPD requirements vary; unfortunately the licensing provisions require taking the basic NISM exam again rather than building advanced knowledge.

Experiences, especially failures, ensure empathy

Anytime I have gone for surgeries, I seek out surgeons with impeccable reputations and track records. When I meet them, I ask about their failures and what they learnt from them. I also get second and third opinions from other reputable surgeons and indeed, non-surgeon specialists.

Similarly, when I’ve assessed fund managers (in my career as a research analyst), I was taught to pay as much attention to the failures as the successes. The best thought out plans fail in a real crisis because of something you’d never thought of. When I see young journalists and professionals confidently giving out generic advice on investing, I wonder whether they have taken their own medicine, let alone lost their own money in a crash.

In summary, the three criteria of qualifications, practice and experience qualify someone as an expert in a field. In some cases, an extraordinary achievement in one may make up for the other. I do know of some journalists who appear to be savvier than qualified finance professionals, but these are rare. And of course, experts can be, and regularly are, completely wrong, especially when forecasting markets. But that does not mean we ignore expertise.

Coming back to whether the idea is more important or the author, I think the answer somewhat depends on the subject and also your own level of knowledge. Once you have a good understanding of the subject, you can evaluate ideas on their own merits without being swayed by the credibility of the author.

In the meantime, I urge retail investors to be more discerning when they come across investing advice in the media. They should apply the same filters when getting advice from well-meaning relatives or friends. Your health and wealth are your most important assets – don’t risk losing them because of general advice doled out by non-professionals, however well-meaning.

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An adapted version of this post appeared in ET Wealth at http://economictimes.indiatimes.com/wealth/plan/why-to-consider-the-qualifications-of-the-financial-journalists-before-acting-on-their-advice/articleshow/55387117.cms

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