Online Investment “Geniuses”

By Eric Tyson

Nowhere will you find more self-proclaimed investing geniuses than online (well, except maybe on cable). Here are some important perspectives and lessons to keep in mind as you surf the web:

  • Beware of promises of easy riches. To deter investors from mutual funds, one website says of its stock picking, “We hope to have put you in position to nearly double the S&P 500. . .. It’ll demand little research per year, and present you little, if any, long-term risk.” If investing were that easy, everyone would be rich! And as any professional money manager knows firsthand, successfully managing a portfolio of individual stocks takes a lot of time, not just a few hours per year.
  • Beware of bloated performance claims. Not surprisingly, many online investing pundits hype claimed returns from their investment recommendations. If you can’t independently verify a performance claim, don’t believe it. Also, keep in mind that even if performance numbers are indeed accurate, calculated returns often overlook trading commissions and taxes (which can be especially high for sites that advocate selling investments after holding them for less than one year).
  • Successful investing doesn’t require following the market closely. Buying and holding index or other quality funds for many years doesn’t take much review time — perhaps as little as a few hours per year to read the fund’s annual reports. The daily and even minute-by-minute tracking of stock prices on many sites causes investors to lose sight of the long term and the big picture (although it draws more visitors to the site, which satisfies advertisers and enriches the site owners).

The bottom line? Be skeptical of financial prognosticators. Like politicians, they’re out to make themselves look as good as possible, taking credit when things go well and blaming external forces when they don’t.