ETF Investment Strategy: The Wild, Wacky World of Investment Advice
Achieving riches with ETFs is only the latest gimmick of investment websites and newsletters that are part of a phenomenon that financial journalist Jane Bryant Quinn once called “investment pornography.” Many newsletters, magazines, newspaper columns, books, and television shows exist to titillate and tease you with the promise of riches.
One glossy consumer finance magazine featured a very attractive woman walking along the beach. The caption under her left foot that the attractive woman earned a 40 percent return in one year. On page 65, you learn that she earned her 40 percent by investing (“on the advice of a friend”) in the Hodges mid cap mutual fund. Mid caps have kicked serious butt in the 12 months prior to this issue’s release.
What the article doesn’t tell you is that the Hodges fund has a fairly hefty expense ratio and — no big surprise here — a 15-year return that trails the S&P MidCap 400 index by 3.54 percent annually.
In 1999, a very popular book entitled Dow 36,000: The New Strategy for Profiting from the Coming Rise in the Stock Market gave readers 300 pages of in-depth explanation why the Dow Jones Industrial average, at that time riding around 10,000, was destined to more than triple in value.
“The case is compelling that 36,000 is a fair value for the Dow today. And stocks should rise to such heights very quickly,” wrote James K. Glassman and co-author Kevin A. Hassett. Of course, as soon as the book came out, advising people to pour money into stocks, the Dow proceeded to tumble to less than 8,000 in a three-year bear market.
Where do you suppose James K. Glassman is today? Why, he’s writing an investment advice column, of course. And he’s writing more books. And he’s making more predictions.
Before Glassman, there were the Beardstown Ladies. In 1983, 16 women in Beardstown, Illinois, started an investment club. In 1994, claiming a 23.4 percent annualized ten-year return, they wrote a book called The Beardstown Ladies’ Common-Sense Investment Guide. It became a huge bestseller. Oops. It turns out, upon further inspection, that the Beardstown Ladies overstated their returns. Their actual return was 9.1 percent a year, considerably less than the stock market.
What happened to the good Ladies of Beardstown? Why, they went on to write five more investment books, of course.
And then there’s Jim “Mad Money” Cramer. If you haven’t taken his screaming advice and lost money on your own, simply search his name on the Internet, along with the words “actual performance” or “flip of the coin,” and you will be very disinclined ever to buy based on one of Mr. Mad Money’s tips.