In my blog last week, I took financial pundit, James Altucher, to task for confidently predicting the Dow would reach 20,000, while advising investors to avoid buying stocks. I noted that neither Mr. Altucher, nor anyone else, can predict the direction of the markets and suggested his advice about avoiding stocks was hopelessly off the mark.
I don't mean to single out Mr. Altucher. He was doing what most self-styled experts and virtually all brokers do every day: Pretend they have an expertise that doesn't exist to inflate their self-importance.
This issue would not merit more discussion but for Mr. Altucher's creative defense to the points I made in my blog. He scrupulously avoided dealing with the merits and justified his conduct by asserting that he is simply trying "to help people." He further noted that "[W]e're all just trying to do our best, support our families, and all covet the freedom we work for."
I don't understand how pretending to have predictive powers you don't have "helps investors." It may support your family, but so do a lot of other activities that don't require misleading your audience.
Every day brokers advise their clients to purchase actively managed funds (where the fund manager attempts to beat a designated benchmark), or to buy individual stocks or bonds, or "alternative investments". Many also attempt to predict the direction of the markets, moving their clients in and out of stocks in response to the news du jour.
They are also simply trying to support their families. Many will tell you they are motivated by a desire to "help investors." Some are aware of the overwhelming data that discredits these activities as being harmful to the returns of their clients. They ignore it because it's in their economic interest to do so. Others are too lazy to review the data or just don't care about giving academically based, sound advice, because that conduct would be discouraged by the brokerage firms that employ them.
As for coveting "the freedom we work for", I am not trying to muzzle Mr. Altucher or his colleagues. I value his First Amendment rights and would vigorously protect him and others from any infringement of those rights. However, I believe it is important for investors to hear the other side of the story, which may act to balance the steady drumbeat of musings freely expressed by emperors with no clothes.
There is an intelligent way to invest. It begins by recognizing there are no gurus with magic wands or psychic abilities. It ends by embracing capitalism and capturing global returns for a given level of risk.
Maybe your broker really does care when his advice costs you your retirement savings. But how is his belated mea culpa going to pay your mortgage?
I see the consequences of their actions every day. I don't want you to become another victim of their conduct.
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"So what do they do?" I innocently asked him about one company. He seemed to barely hear me. He was caught up in the game and, truth is, he didn't have any idea what this-or-that company did.
He did okay. Not outstanding, but okay. Finally realized, though, that the mutual fund that he had no daily involvement in was doing every bit as good as he was ... financially speaking. And he _could tell me what companies that fund had invested in, and why he liked their choices.
When you invest, you're providing capital to a business. That business isn't in the business of providing returns to you, although if they do their business well, they do. If you have no idea what you've invested in or why you're doing it, then, face it, you're betting on an electronic horse-race, and your broker is your bookie. That, too, is okay ... an honorable pasttime if a costly one ... just, understand what you're doing.