SmartMoney recently published an article entitled "15 Great Stocks From the Great Depression." The purpose of the article was to show investors that there were some great opportunities for bottom fishing when the markets tanked.
The premise is that this information should help investors pick outperforming stocks in this bear market.
While the article is interesting, the premise is flawed. It perpetuates the myth that stock picking is a worthy endeavor for investors. Worse, it feeds the false belief that relying on the expertise of the financial media is helpful to investors seeking to improve their returns.
Last year around this time, SmartMoney identified 12 companies around the world that it predicted would have stellar profits in 2008. It did so with great confidence, noting "[A] rocky stock market and fears of an economic slowdown have investors wondering what to do next. We've got the answer."
It did have an answer. Unfortunately, it was the wrong one.
Investors who relied on its predictions lost an average of 52.4% of their investment. One recommended stock dropped by more than 88%.
Readers of SmartMoney would have been better off investing in an S&P 500 index fund. It lost only 40.2%. They could also have saved the cost of SmartMoney.
SmartMoney's track record is no worse than its competitors.
In an article published December 2007, Business Week surveyed "a half-dozen market strategists with a cumulative 175 years of experience." They predicted where they thought the DJIA would be at the end of 2008.
The predictions of these distinguished experts ranged from a low of 12,500 to a high of 16,000. The most bullish of the group was Elaine Garzarelli who found her fifteen minutes of fame when she correctly predicted the 1987 crash. Ms. Garzarelli checked an impressive list of fourteen indicators she followed and concluded that the S&P and Dow were poised for a 20% increase. Her advice was very precise. She recommended Lehman Brothers (now bankrupt), Bear Stearns (no longer in business) and Merrill Lynch (sold in a fire sale to Bank of America).
Forbes picked Nvidia as its "Company of the Year" in January, 2008. Its stock dropped by more than 75% during the ensuing year.
The list is endless and so is the damage to guileless investors who rely on these publications and on the highly confident financial pundits on TV who regale us with their market insights and theatrical antics.
Can we just call this what is? Financial pornography.
When cigarettes were determined to be harmful to the health of users, the government required a warning on the package indicating its dangers.
The next time you read or watch the financial media and someone is touting a stock or market sector or telling you how to "beat the markets", try to visualize this warning: Reading or watching this magazine or program may be harmful to your financial health.
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