Get Educated to Discern the Best from the Rest
With the tremendous increase in the coverage of investing, more and more “journalists” and self-anointed experts are writing about increasingly technical issues — often in areas in which they have little or even no expertise. (This type of reporting is true in traditional print publications but especially so online.) Some writers provide good information and advice. Unfortunately, many others dish out bad, biased and/or mediocre advice.How can you know what information is good and whom you can trust? The answer rests in educating yourself. The more knowledgeable you are about sound and flawed investment strategies, the better able you are to tell good from not-so-good investment resources.
Beware “Free”
Too many folks get suckered into supposedly free resources when looking for investing information and advice. The Internet is filled with tons of “free” investing websites and blogs, and if you turn on your television or radio, you come across mountains of “free” stuff. Someone is paying for all this “free” content, of course, and it’s all available for some reason.Most of the free Internet sites are run by investment companies or someone else (such as small-time money managers) with something to sell. What these sites give away is nothing but subtle and not-so-subtle advertising for whatever products and services they sell. Also, watch out for free sites that make money through referrals. Affiliates are companies that provide referral fees and income for business that websites direct their way, and such payments create major conflicts of interest for the websites. For that reason, a website shouldn’t receive affiliate fees when recommending a financial product or service.
Many investing books also contain thinly veiled advertisements. Some so-called authors choose to write books that are the equivalent of infomercials for something else — such as high-priced seminars — that they really want to sell you. Such writers aren’t interested in educating and helping you as much as they’re seeking to sell you something else. So, for example, an author may write about how complicated the investing markets are, saying that investing is too complicated to do on your own and that you really need a personal investment manager like the author.
Understand the Influence of Advertising
Whether on the Internet, on television, in print, or on the radio, advertising often compromises the quality of the investment advice it accompanies. You might be able to find some useful investment resources in media with lots of advertising. These resources, however, are exceptions to the rule that sources with lots of advertising contain little valuable information and advice.Many organizations, such as newspaper and magazine publishing companies and radio and television stations that accept ads, say that their ad departments are separate from their editorial departments. The truth, however, is that in most of these organizations, advertisers wield influence over the content. At minimum, the editorial environments at these organizations must be perceived as being conducive to the sale of the advertisers’ products.
Another problem is the merging of editorial and advertising content into advertorials, whereby a company or person pays a fee to a website to place provided content that’s really an ad in disguise. This practice is unethical, especially when it isn’t clearly and boldly disclosed.
The influence of advertisers prevents readers, viewers, and listeners from getting the truth and best advice. Specifically, some media organizations and publishers simply won’t make derogatory comments about advertisers, and sometimes they highlight and praise investment companies that are big advertisers.
Value Quality over Quantity
Talk about information overload! Blogs on the topic of investing continue to multiply. You can’t peruse a newspaper or magazine or turn on the television or radio without bumping into articles, stories, segments, and entire programs devoted to investment issues.The Internet introduced a whole new medium. Now, at a relatively low cost, anyone can publish “content” online. The number of television channels has mushroomed as a result of cable television. Flip through your cable channels at any hour of the day, and you see infomercials that promise to make you a real estate tycoon or stock market millionaire in your spare time. These communications options are primarily structured around selling advertising rather than offering quality content. The accessibility of these communications media allows just about anyone with an animated personality or access to a computer to appear to be an expert. Much of the advice out there can easily steer you in the wrong direction.
Because investment information and advice is so widespread and constantly growing, knowing how to sift through it is just as important as hearing what the best resources are today. When chosen wisely, the best investing resources can further your investment knowledge and enable you to make better decisions. Quality is more important than quantity.
Know How to Check Out a Resource
The best thing to do when you encounter a financial magazine, website, blog, radio or television program, or other resource for the first time is scrutinize it.All things being equal, you have a greater chance of finding quality content when subscriber fees account for the bulk of a company’s revenue and advertising accounts for little or none of the revenue. This generalization, of course, is just that: a generalization. Some publications that derive a reasonable portion of their revenue from advertising have some good columns and content. Conversely, some relatively ad-free sources aren’t very good.
Deciphering a writer’s philosophy and agenda is important in determining whether he provides quality information. Readers of my books, for example, can clearly understand my philosophies about investing. I advocate buying and holding, not trading and gambling. I explain how to build wealth through proven vehicles, including stocks, real estate, and small-business ownership.
Unfortunately, many publications and programs don’t make it as easy for you to see or hear their operating beliefs. You have to do some homework. With a radio program, for example, you probably have to listen to at least portions of several shows to get a sense of the host’s investment philosophies.
Examine the backgrounds, including professional work experience and education credentials, of a resource’s writers, hosts, or anchors. If such information isn’t given or easily found, consider this omission to be a red flag. People who have something to hide or who lack solid credentials usually don’t promote their backgrounds. Also, don’t blindly accept presented qualifications as being honest or truthful.
Other red flags include publications and programs that make investing sound overly complicated and that imply — or say outright — that you won’t succeed or do as well if you don’t hire a financial advisor or follow your investments like a hawk.
Beware Hype and Exaggeration
There’s an old news-media expression that says, “If it bleeds, it leads.” Translation: Jarring, violent, or blood-and-gore stories attract attention.Too often, this is the case in financial reporting too. If the stock market drops quickly or there’s a disappointing economic report, you’re sure to hear about it over and over again. Ditto for political scandals.
Frequently, negative events are blown out of proportion and hyped to garner more attention. Don’t get carried away by the hype or be misled into believing that much of this short-term news should impact your important and longer-term investing decisions.
Don’t Assume Quoted Experts Know Their Stuff
Historically, one way that investment journalists have attempted to overcome technical gaps in their knowledge has been to interview and quote experts in the field. Although these quotes may add to the accuracy and quality of a story, journalists who aren’t experts themselves often have difficulty discerning qualified experts from hacks.One common example of this phenomenon is that many investment writers quote unproven advice from investment-newsletter writers. As I discuss later in this chapter, the predictive advice of many newsletter writers is often poor, causing investors to earn lower returns and miss investment gains due to frequent trading. Journalists who simply parrot this type of information and provide an endorsement that unqualified sources are “experts” do readers an immense disservice.
Investigate Gurus’ Claims
The tremendous growth in the number of people talking and writing about investing on websites, on cable television, and on radio means that more pundits are making claims about the value of their predictions. Unfortunately, many publications and media outlets that interview and give air time to these pundits fail to independently investigate most such claims.You don’t need predictions and soothsayers to make sound investing choices. If you choose to follow this “expert” advice and you’re lucky, little harm will be done. But more often than not, you can lose lots of money by following a pundit’s predictions.
Never accept a guru’s performance claims as valid. These claims should always be verified through an independent source. Visit the “Guru Watch” section of the author's website for analysis of many of the popular gurus in the media today.
Don’t Believe Investment-Newsletter Claims
Especially in the investment-newsletter business, you’ll see and hear lots of extraordinary performance claims. Private money managers, who aren’t subject to the same scrutiny and auditing requirements as fund managers, can do the same.Be especially wary of any newsletters making claims of high returns. 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).
Also be aware that plenty of gurus and newsletters will tout many strategies, investments, and funds, and then continue to hype only the one or two that happen to do well. The strategy or back-tested model may in fact have a good track record over a given period, but it may be cherry-picked and unlikely to succeed in the future.
Don’t believe a track record unless a reputable accounting firm with experience doing such audits has audited it. Stay far away from publications that purport to be able to tell what’s going to happen next. No one has a crystal ball.
Check Out and Keep Up with These Resources
Some resources have stood the test of time and offer worthwhile perspectives and insights. Here are some of the best for you to consider:- CorporateInformation: If you want to pick your own stocks, this site has a treasure-trove of information, but subscription fees aren’t cheap.
- Morningstar: The premium content here, which is more moderately priced, covers all types of funds and most stocks.
- A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing by Burton G. Malkiel (W.W. Norton): This book has gotten better over the years with its new editions.
- U.S. Securities and Exchange Commission: The U.S. Securities and Exchange Commission provides free access to the regulatory-required filings of investment funds and public companies.
- Fred (St. Louis Federal Reserve Economic Data): This site has lots of interesting economic research and tons of historic economic data.
- Stocks for the Long Run: The Definitive Guide to Financial Market Returns & Long Term Investment Strategies by Jeremy J. Siegel (McGraw Hill): This terrific book details investing in stocks around the globe over the long run.
- Value Line: Value Line has generations of experience providing concise summaries for the stocks of public companies. Most subscriptions run at least several hundred dollars per year.
- Vanguard: The leading no-load mutual fund company, Vanguard has plenty of user-friendly and readable information on its website.
- EricTyson.com: The author regularly digests the best financial information and advice and then posts the latest on this website. Some content is free, and premium content is available at a relatively low cost.