In financial investing, there is a debate that has gone on for years: Can a non-expert or someone who randomly throws darts at a list of financial stocks make better stock picks than a professional money manager? Known as the “dumb money” strategy, this approach was made famous by Princeton University professor Burton Malkiel. In his book “Random Walk Down Wall Street,” Malkiel suggested that monkeys could pick stocks better than human advisors. As a follow up to Malkiel’s premise, The Wall Street Journal held its own series of contests for a dozen years testing the same issue. They found that experts won more than 60% of the time with non-experts making up the remaining percentage.
In the first two months of 2020, Goldman Sachs compiled data showing that the 50 most popular stocks among individual investors outperformed the experts’ choices by 4%. While both groups exceeded the S&P 500 benchmark by wide margins, the non-experts were ahead after two months. So, how can non-experts be better at equity selection than pros who spend their days analyzing and researching company information and making their income supposedly beating the market?
Of course, just looking at two months of returns doesn’t prove much and professionals still hold the edge in the important category of frequency gainers according to a Bloomberg News article. Frequency gainers are about having the largest number of stocks that have increased in value versus choices made by non-experts which often include current popular picks as well as long-shot options. It is no surprise that investors who take a chance with a long-shot strategy tend to lose money and lose big.
In my view, mortgage banking faces a similar scenario as financial investment advisors. In our industry, non-expert sales professionals often appear to win during a refinance market when these individuals are not really matched to the selling profession. These producers may in fact hit production goals in a refinance market, but when the shift to a more difficult purchase money environment inevitably occurs, they don’t have the skills needed to generate loan demand.
Refinance originators tend to be really good product specialists but they don’t have what it takes to succeed in the long run. These sales professionals typically use their company’s marketing materials including postcards, newsletters and emails to reach target audience groups. Unfortunately, these efforts aren’t enough to distinguish them from other originators in the minds of prospects and referral sources.
On the other hand, top producers or sales experts operate on a different level and have the results to show for it. Sales experts understand that their sales models and marketing efforts need to be continually adapted to resonate with consumers and referral sources. They commit to learning the latest selling techniques and recognize that mastering social media is an integral part of their job today.
While non-experts may succeed in a refinance market, sales experts are prepared to win regardless of the marketplace environment. Top producers simply don’t leave their success to chance. A “dumb money” strategy isn’t part of their DNA.