The Value of a Second Opinion

Imagine that, for a fewer months now, you’ve had a group of caller wellness symptoms that look to beryllium related. So you spell to spot a expert astir it. The expert tells you that he thinks it’s astir apt [some peculiar condition], but he notes that this isn’t nan benignant of point that tin beryllium diagnosed pinch 100% confidence. This isn’t for illustration a surgery wrist, wherever we tin conscionable look astatine an x-ray and say, “Yep, that’s broken.”

Given nan doctor’s uncertainty, you determine that you want a 2nd opinion. So you spell spot different doctor. And she tells you beautiful overmuch nan aforesaid point arsenic nan first doctor. And that’s valuable! Even though she didn’t adhd immoderate caller information, and moreover though she was besides not 100% confident, nan truth that 2 different specialists agreed should springiness you much confidence.

Now ideate that location was an easy measurement for you to get not only a second, third, aliases 4th opinion, but thousands of opinions. Imagine that you could person thousands of specialists reappraisal your symptoms, your trial results, and your aesculapian history — and past each of those physicians’ feedback would beryllium collected and tabulated. And you study that astir doctors do so work together pinch what nan first 2 doctors said.

That doesn’t needfully mean they’re each correct. (After all, they themselves noted that there’s immoderate inherent uncertainty here.) Maybe nan correct test is 1 of nan less-common possibilities that immoderate of nan different doctors mentioned. Or possibly it’s a test that only 1 aliases 2 physicians mentioned.

But you person to prime a curen plan. And fixed that you aren’t an master successful this section yourself (or frankly, moreover if you are an expert), selecting a scheme that’s based connected nan feedback of nan mostly of nan experts is very apt to beryllium your champion bet.

And that, by nan way, is really nan banal marketplace works.

The value of a banal astatine immoderate fixed clip reflects nan statement sentiment of a immense number of master experts connected nan topic. This is not to opportunity that each investor agrees that nan existent value is nan correct price. But nan existent value is nan weighted-average consensus, erstwhile we weight everybody’s sentiment by nan number of shares of nan banal that they trade. (Point being, nan master investors who move nan astir money, specified arsenic communal money managers, hedge money managers, pension money managers, endowment managers, etc. are nan group who are chiefly responsible for mounting nan prices based connected their trading.)

When you bargain individual stocks, aliases erstwhile you jump successful and retired of nan marketplace based connected stocks collectively looking overvalued aliases undervalued, you’re deciding that you cognize much than nan corporate statement of a immense number of experts. It’s for illustration a sick diligent receiving feedback from thousands of expert specialists and past promptly ignoring that feedback, because he’s convinced he knows amended than each those doctors do. Sure, it mightiness hap to activity out. But it’s not a awesome bet. And it’s decidedly not nan benignant of point that you’d want to instrumentality arsenic a wide policy.