March 12, 2019

Caveat Emptor

Caveat Emptor - Michael Jette - Carroll Financial

Not so long ago staying current with the times meant watching the news on broadcast television or reading our newspaper and magazine subscriptions. Things have changed. We now have 24/7 access to the news via multiple media sources (i.e., cell phones, tablets, cable television, computers, newspapers, books, magazines, etc.).

“Caveat emptor” is a Latin phrase that translates to “let the buyer beware.” It’s an implicit warning to a buyer that the property he or she is purchasing may have unforeseen defects, which places the responsibility on the purchaser to do due diligence before closing the sale. As consumers of media that supplies us with overwhelming amounts of information, my caveat emptor is this: It is the responsibility of consumers of information to filter all media for opinions and biases and to determine relevance and accuracy. We must also evaluate the depth of knowledge presented. We inherently put a lot of value on information that is outside our area of expertise and are susceptible to the Murray Gell-Mann amnesia effect.

Michael Crichton coined this term in his 2005 essay “Why Speculate” to further explain this irony in human behavior. Crichton writes, “You open the newspaper to an article on some subject you know well. In Murray’s case, physics. In mine, show business. You read the article and see the journalist has absolutely no understanding of either the facts or the issues. Often, the article is so wrong it actually presents the story backward—reversing cause and effect. I call these the ‘wet streets cause rain’ stories. Paper’s full of them. In any case, you read with exasperation or amusement the multiple errors in a story, and then turn the page to national or international affairs, and read as if the rest of the newspaper was somehow more accurate about Palestine than the baloney you just read. You turn the page, and forget what you know.”

As I write this it is crystal ball time for Wall Street stock strategists. How helpful and accurate were their 2018 predictions? A USA TODAY analysis of more than a dozen 2018 predictions from Wall Street’s biggest banks found a wide variation in where stocks were headed. The most bullish year-end price target for the S&P 500 was 3,100, nearly 16% higher than its 2017 level of 2,680.[1] The least optimistic prediction was 2,750, which represented a gain of less than 3%. The average target was 2,883, or a return of roughly 7.5%. No one called for a big drop in stock prices.[2] The S&P 500 finished down -4.38%.

From the desk of Michael Jette, CFP®, CLU®, ChFC

 

This article was featured in the Winter 2018 Quarterly Newsletter available here: 

Carroll Financial Winter Quarterly Newsletter 2018

 

[1] The S&P 500 Index is a capitalization weighted index made up of 500 widely held large-cap U.S. stocks in the Industrials, Transportation, Utilities and Financials sectors.

[2] Adam Shell, USA TODAY Dec. 27, 2017

 

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