By Tom Bradley

As I pointed out in a recent post (Everyone is an Economist), we all have a tendency to become economists at extreme times like this. Everyone has a view on the economy, the dollar, Ben Bernanke, U.S. consumer debt and Wall Street’s demise. And with our increased focus comes increased confidence and conviction that our view is right.

I read a piece last weekend that reminded me how hard it is for economists, or big picture thinkers in general, to get it right. And of particular importance to me, how hard it is for said thinkers to enhance our investment returns.

In his weekly letter, Tim Price of PFP Wealth Management in the U.K. wrote:

“The essential problem of Traditional Economics is that it assumes a largely closed system of...incredibly smart people but in unbelievably simple worlds. The reality...is that the economy is closer to being a complex, adaptive, dynamic system – not unlike a living organic being, vulnerable to illnesses and other sudden exogenous outbreaks.”

Thinking and talking about the big picture is interesting, fun (for some of us at least) and it makes us better conversationalists. But for those who are charged with generating investment returns for our clients, we have to be careful how we use it.

More from Mr. Price:

“Fundamentally, it makes sense to own up to our lack of complete foresight and conviction. From an economic and investment perspective, a realistic assessment of the limitations of our knowledge may be helpful. Overconfidence – in economic modeling or financial forecasting or the sustainability and durability of previous market relationships – is unlikely to be of much advantage.”

I admit to being down on the big picture stuff lately – this is the second ‘Everyone is an Economist’ and last week I posted on the futility of predicting currencies – because in recessions there is a tendency to make it too big a part of our investment decision-making process.

We can most reliably add value for clients by identifying undervalued securities – stocks and bonds – that have a high chance of generating an above-average return over the long term. There is no denying that we need to know the context in which we’re investing, but when we let ourselves get caught up in the noise, we are distracted from that mission.

We become part of the short-term oriented herd, a herd of economists no less.