Chapter 17
In This Chapter
Sifting through financial magazines and newspapers
Surveying radio and television programs
Steering clear of most investment newsletters
Newspapers, magazines, newsletters, and radio and television programs inundate you and other investors with a constant barrage of investing information and advice. In this chapter, I explain what to look for — and what to look out for — when you tune in to these traditional media sources in the hopes of investing better.
Visit a newsstand, and you find many investing publications as well as general interest publications with investing columns. I’ve written investing articles for various magazines and newspapers. Some of the experiences have been enjoyable, others okay, and a few miserable. The best publications and editors I’ve written for take seriously their responsibility to provide quality information and advice to their readers.
Perusing high-quality publications is fun, but reading those that include tons of hype and inaccurate information is mind-numbing. In the following sections, I discuss the problems with magazine and newspaper investment articles so you can easily recognize and avoid them.
Whenever the stock market suffers a sharp decline, many in the media bring out the gloom and doom. For example, when the stock and real estate markets slid sharply in the late 2000s, scores of “Great Depression II” pieces populated the pages. First came talk that the “real” unemployment rate was actually closer to 20 percent instead of the reported (and already high) 10 percent. Other similar negative stories weren’t far behind.
Then came the news stories that the local, state, and federal governments were so laden with debts that bankruptcy loomed and the very existence of the United States was in jeopardy. (Global stock prices, meanwhile, more than doubled from their lows in early 2009, once again proving that the best values and opportunities come to those brave enough to buy when others are fearful of doing so and when bad news is easy to find.)
Another particularly popular subject for such hyped-up reporting is the cost of a college education. (See, you can write a sentence about the cost of education without including the word skyrocketing.) Scores of these articles horrify parents with estimates of the expected costs associated with sending Junior to campus. The typical advice they provide goes like this: Start saving and investing early so you don’t have to tell Junior that you can’t afford to send him to college.
Historically, one way that finance journalists have attempted to overcome technical gaps in their knowledge is to interview and quote financial experts. Although these quotes may add to the accuracy and quality of a story, journalists who aren’t experts themselves often have difficulty telling qualified experts from hacks. (See Chapter 16 for a discussion on examining the qualifications of writers who offer up financial guidance.)
Daily financial press writers contribute to today’s shortsighted investment environment and encourage readers to adopt similarly misguided outlooks. A focus on the noise of the day causes nervous investors to make panicked, emotionally based decisions, such as deciding to sell after major stock market falls.
Of course, the daily print media aren’t the only ones chronicling the minutiae. As I discuss elsewhere, other media, including television, radio, and the Internet, cause many investors to lose sight of the long term and the big picture. (I discuss television and radio resources later in this chapter; you can read about Internet resources in Chapter 19.)
So what should you do if you want to find out more about investing but don’t want to be overloaded with information? Educate yourself and be selective. If you’re considering subscribing to financial publications, review some old issues and articles first. Try to determine whether the information and advice was useful and error free. The more you know, the easier it is to separate the wheat from the chaff.
Shy away from publications that claim to be able to predict the future — few people have a knack for forecasting financial numbers, and those who do are usually busy managing money. Unfortunately, as the financial markets got more volatile in the late 1990s, the early 2000s, and then again in the late 2000s, I witnessed more and more publications promoting columnists and headlines that attempted to prognosticate the future.
And remember that you’re not going to outfox the financial markets, because they’re reasonably efficient (see Chapter 4). Seek information and advice that help you flesh out your goals and develop a plan instead of hunting for the next hot stock tip or worrying about short-term trends.
As you move from the world of magazines and newspapers to radio and television, the entertainment component usually increases. In this section, I highlight some common problems with radio and television programs.
I’ve been a guest on hundreds of radio and television programs. Just as Dorothy discovered in The Wizard of Oz, seeing how things work behind the scenes tends to deglamorize these mediums. Here are the main problems I’ve discovered from my years observing radio and television.
Not surprisingly, some of the worst financial advice is brought to you for “free.” Nationally, thousands of radio stations have financial and money talk shows. Money and investing shows are proliferating on television cable channels. Because listeners don’t pay for these shows, advertising often drives who and what gets on the air, as I discuss in Chapter 16.
I’ve found that some of the worst offenders are local and even national radio advice programs. Some of these shows are “hosted” by a person who is nothing more than a financial salesperson. That person’s first and sometimes only motivation for hosting the show is to pick up clients. Many local radio investing programs are hosted by a local stockbroker (who usually calls himself a financial consultant or planner). A broker who reels in just one big fish a month — a person with, say, $300,000 to invest — can generate commissions totaling $15,000 by selling investments with a 5 percent commission.
At 9:30 a.m. EST, the New York Stock Exchange opens, and transactions start streaming across the bottom of television screens that are tuned to financial cable stations. Changes in the major market indexes — the Dow Jones Industrial Average, the S&P 500, and the NASDAQ index — also flash on the screen. In fact, these indexes are updated almost every second on the screen. Far more exciting than a political race or sporting event, this event never ends and offers constant change and excitement. Before the U.S. markets open and after they close, reporting of still-open overseas markets continues. The performance of futures of U.S. stock market indexes then appears on the screen.
Some journalists, often in an effort to overcome their own lack of knowledge, interview “experts.” A classic example of this problem is the media exposure that author Charles Givens used to receive. Givens became a darling of the media and the public following an unprecedented, consecutive three-day appearance on NBC’s Today show.
“When Charles Givens talks, everyone listens,” said Jane Pauley, then co-host of the Today show. Bryant Gumbel, the other co-host, said of Givens, “Last time he was here, the studio came to a complete stop… . Everyone started taking notes, and I was asking for advice.” Givens regularly held court on the talk show circuit with the likes of Larry King and Oprah Winfrey.
The Givens case highlights some of the media’s inability to distinguish between good and bad experts. It’s relatively easy for the financially sophisticated to see the dangerous, oversimplified, and biased advice that Givens offers in his books. In his first bestseller, Wealth Without Risk, Givens recommended investing in limited partnerships and provided a phone number and address of a Florida firm, Delta Capital Corp., where readers could buy the partnerships. Those who bought these products ended up paying hefty sales commissions and owning investments worth half or less of their original value. Besides the problematic partnerships he recommended, court proceedings against Givens in a number of states uncovered that he owned a major share of Delta Capital.
So how did Givens get on all these national programs? He had a shrewd publicist, and the show producers either didn’t read his books or were financially illiterate themselves. Talk shows and many reporters often don’t take the time to check out people like Givens. Most of the time, they never read the books these so-called experts write. Producers, who themselves usually don’t know much about investing, often decide to put someone on the air on the basis of a press kit or a call from a publicist.
Particularly in the newsletter business, prognosticators fill your mailbox and e-mail inbox with promotional material making outrageous claims about their returns. Private money managers, not subject to the same scrutiny and auditing requirements as mutual fund managers, can do the same.
Turns out that this outrageous claim was based on backtesting, looking back over historic returns and creating “what if” scenarios. In other words, Leeb didn’t turn anyone’s $10,000 into $39 million. Much too late after that ad appeared, the SEC charged Leeb with false advertising. Leeb settled out of court.
According to the Hulbert Financial Digest, the worst investment newsletters have underperformed the market averages by dozens of percentage points; some would even have caused you to lose money during decades when the financial markets performed extraordinarily well, like the 1980s and 1990s. Newsletter purveyor Joe Granville, for example, has long been known for making outrageous and extreme stock market predictions and is often quoted in financial publications. He claims to have the number-one-rated newsletter, but he fails to mention that it was number one for one year only (in 1989). Over the subsequent decade — one of the best decades ever for the stock market (with U.S. stocks more than quadrupling in value) — followers of Granville’s advice lost 99 percent of their investments!
The best investment publications can assist you with research and ideas. For individual stock selection, please see my recommended resources in Chapter 6.