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John Stossel: Don't Put Much Stock in TV Experts
Creator's Syndicate ^ | May 17, 2006 | John Stossel

Posted on 05/17/2006 3:02:05 AM PDT by RWR8189

Stocks go up and down, but eventually, most go up. So if you invest and hold on, odds are you'll do quite well. As my former Princeton economics professor, Burton Malkiel, told me, "The stock market is like a gambling casino with the odds in your favor. Over the long pull, it beats inflation, and beats it by a great deal."

If you want to beat other investors, too, it's logical to think that you should turn to the most visible specialists for advice. These men and women make their living studying stocks, and they sound so confident on CNBC. You'd think they could beat the market.

Don't bet on it.

"Most of the guys on TV -- they're not that good," said Jim Cramer. He should know: He's all over the place talking about investing -- CNBC, CBS Radio, the Web, bookstore shelves, and New York magazine. Cramer told me that he is different from other stock-pickers because he has no hidden motives.

"A guy comes on TV," said Cramer. "Thought process at home: 'There's a person who has looked at the whole industry and is making judgments about what are the best stocks.' Wrong! Wrong! The worst are guys who say that they love a stock and they're selling the stock. That happens all the time."

Then there are the guys who pump the stocks of companies with whom they're doing business.

CNBC's "Guidelines for Appearances by Financial Professionals" now require its experts to tell it, so it can tell you, about any ties they have to the companies they discuss. But even the scrupulous expert, the one who's not touting his friends or customers, is unlikely to give you much of an edge.

"I ended up losing just over $40,000," trailer park manager David Talevi told "20/20." That was a year's salary for him. He lost it buying stocks they recommended on TV. "You just took their word for granted," he said. "I figured, you know, 'This thing is going to take off.'"

"This thing" crashed instead.

How could the TV experts be so wrong? They are well-educated people who call and visit individual companies, and study the balance sheets, new products, and marketing techniques. They work at this full time. You'd think this would give them an advantage. But it doesn't, Professor Malkiel said, because what they learn is information all the analysts have. Malkiel wrote a book about the process called "A Random Walk Down Wall Street." He studied stock movements of the past, and concluded that the advice produced by the in-house experts has little value. "Most of it is just absolute nonsense," he told me, "and most of it is really designed to get people to trade more than they should."

The brokerage firms want you to trade more, because they charge a commission on every trade. But year after year the trading advice that comes out of most of the big brokerage firms is no better at selecting winners than throwing darts at the stock table, or having a monkey throw darts. In fact, the advice is usually worse! People who chart the brokerage firms' recommendations said that over a 15-year period ending in 2005, only 5.72 percent of actively managed mutual funds had beaten the 500 stocks that make up the Standard & Poor's Index. In other words, 94 percent did worse.

None of the big brokerage firms would talk to me about their failure to outperform dart-throwing monkeys, so I interviewed successful money manager Robert Stovall. He used to run research departments at EF Hutton and Dean Witter Reynolds, and he told me just when the experts are useful.

"Everybody has a boss," he said. "Professionals won't buy Coca-Cola or some other stock unless they have reports in the file produced by well-known analysts so if something goes wrong with the stock they buy, they can show their boss, 'Hey, I've got a big file on this stock. All these analysts said it was a good one. Something went wrong.'"

So go ahead. Follow an expert. Then, when something goes wrong, you can blame him.

But if it's your money at stake, you'll probably do better with an index fund -- or a monkey.

Bananas are cheaper than brokerage fees.

Copyright 2006 Creators Syndicate



TOPICS: Business/Economy; Editorial; News/Current Events
KEYWORDS: bananas; bonzo; bubbles; cheetah; cnbc; jimcramer; johnstossel; pundits; stossel; tvexperts

1 posted on 05/17/2006 3:02:10 AM PDT by RWR8189
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To: RWR8189

By the time you hear about a stock pick, everyone else has too, and the price reflects that. Buying stocks you hear about on TV only makes the insiders rich.


2 posted on 05/17/2006 3:20:16 AM PDT by opticks
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To: RWR8189

Good advice. Most people (i.e. those who are able to spend fewer than 3-5 hours a week keeping up with their investments and financial news) are probably better off simply buying a well-designed portfolio of ETFs or no-load mutual funds, rather than trade.


3 posted on 05/17/2006 3:20:37 AM PDT by oblomov (Join the FR Folding@Home Team (#36120) keyword: folding@home)
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To: RWR8189
A few caveats about the advice offered in this article.

1. One risk one seldom mentioned is the risk of withdrawal. If the the stock market is in a bear phase and one is required to withdraw funds, one's capital is disproportionally diminished.

2. Many studies promoting index funds use historical indices to prove the wisdom of investing in such funds. What these studies rarely mention is that indices are constantly by dropping some stocks while adding new stocks.

3. One should pay close attention to the starting and ending dates of the studies mentioned in point 2 above.

4 posted on 05/17/2006 3:27:36 AM PDT by monocle
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To: opticks

correctamundo


5 posted on 05/17/2006 3:29:18 AM PDT by beyond the sea ("If you see strange men lurking about in groups of three - especially in North Carolina, RUN!)
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To: RWR8189

I listen to Bob Brinker's "Money Talk" on the weekends, and he knows what he's talking about when it comes to investments. Then I hear him say some incredibly stupid socialist thing about the economy, and I just cringe. I can never understand how he understands investing so well, but can still spout socialist viewpoints on the economy. It's just amazing.


6 posted on 05/17/2006 3:34:01 AM PDT by Hardastarboard (Why isn't there an "NRA" for the rest of my rights?)
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To: Hardastarboard

Ever know of a mechanic with poor taste in cars?

It happens.


7 posted on 05/17/2006 3:41:38 AM PDT by coconutt2000 (NO MORE PEACE FOR OIL!!! DOWN WITH TYRANTS, TERRORISTS, AND TIMIDCRATS!!!! (3-T's For World Peace))
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To: RWR8189

Hooray for low-fee index funds.


8 posted on 05/17/2006 3:42:42 AM PDT by FreedomPoster (Guns themselves are fairly robust; their chief enemies are rust and politicians) (NRA)
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To: opticks
Just read about jimbo cramamerica here & his hype till March 2000 tech bubble bust ! The Fortune Tellers: Inside Wall Street's Game of Money, Media and Manipulation by Howard Kurtz About this title: From the author of the bestselling "Spin Cycle" comes an engrossing expos of how the media drive the financial markets today. Kurtz introduces the powerful journalists, commentators, and analysts whose reports have a real-time impact on the rise and fall of stocks and on the financial health of investors.
9 posted on 05/17/2006 3:54:58 AM PDT by SIRTRIS
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To: RWR8189
I love to hear someone call themselves a stock "expert."

I also love to ask them if they are such an "expert" why are they working for a living.  They should be rich beyond belief.

It seems to be something they can't answer.

10 posted on 05/17/2006 3:56:07 AM PDT by DH (The government writes no bill that does not line the pockets of special interests.)
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To: Hardastarboard

I used to really enjoy listening to Brinker. I stopped, for the very reason you mention.


11 posted on 05/17/2006 4:06:09 AM PDT by oblomov (Join the FR Folding@Home Team (#36120) keyword: folding@home)
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To: oblomov

Ditto!


12 posted on 05/17/2006 4:13:42 AM PDT by maica ( We have a destination in mind, and that is a freer world. -- G W Bush)
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To: Hardastarboard
I'll listen to his show only when Kudlow hosts it. Kudlow has to undo everything to do with the politics of money and you can just tell that many of the callers are just incredulous with Kudlow for it.
13 posted on 05/17/2006 4:22:10 AM PDT by LowCountryJoe (I'm a Paleo-liberal: I believe in freedom; am socially independent and a borderline fiscal anarchist)
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To: RWR8189
"None of the big brokerage firms would talk to me about their failure to outperform dart-throwing monkeys..."

I would love to see the looks on their faces when they get asked that question!

14 posted on 05/17/2006 4:58:13 AM PDT by Abathar (Helen Thomas's first job was the test dummy at the Ugly Stick Manufacturing Co.)
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To: RWR8189

ping for later


15 posted on 05/17/2006 5:26:50 AM PDT by true_blue_texican (grateful texan! -- whoops! I'm sober tonight, what happened?)
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To: RWR8189

Well that's amusing. Why not just go to the craps table and put your money on the pass line? At least the casino gives you complimentary beer.


16 posted on 05/17/2006 5:36:42 AM PDT by Ace of Spades (Sed quis custodiet ipsos custodes?)
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To: DH

Jim Cramer *is* rich beyond belief. OTOH, I'm not particularly convinced that the ordinary guy can get rich with Cramer's picks.


17 posted on 05/17/2006 5:42:39 AM PDT by Sam Cree (Delicacy, precision, force)
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To: RWR8189
the trading advice that comes out of most of the big brokerage firms is no better at selecting winners than throwing darts at the stock table, or having a monkey throw darts.

Parrots and cage liner. I've heard good things.

18 posted on 05/17/2006 5:47:04 AM PDT by martin_fierro (< |:)~)
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To: RWR8189
What was that Gomer?

SIR-PRIZE SIR-PRIZE SIR-PRIZE!

19 posted on 05/17/2006 5:53:08 AM PDT by 70times7 (An open mind is a cesspool of thought)
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Comment #20 Removed by Moderator

To: RWR8189

I don't believe in any of that investing and other things like that..I take my money and bury it in the back yard..wife says I should at least bury it in a box..but I don't believe in such new age idees..


21 posted on 05/17/2006 6:21:19 AM PDT by BerniesFriend
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To: Sam Cree

People who criticize Cramer's stock picks miss the point, I think. He gives insights in how traders think and demonstrates that you don't need a crystal ball to make money in the market.

In my experience, buying stocks is relatively easy and the TV experts sometimes do give useful tips. Knowing when to sell is a lot harder, and you almost never hear anyone talk about this.


22 posted on 05/17/2006 7:02:34 AM PDT by joylyn
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To: joylyn
In my experience, buying stocks is relatively easy and the TV experts sometimes do give useful tips. Knowing when to sell is a lot harder, and you almost never hear anyone talk about this.

You're preaching to the choir here. I bought Intel low but forgot the "sell high" part before the 2000 Clinton stock market crash.

23 posted on 05/17/2006 7:14:26 AM PDT by KarlInOhio (Never ask a Kennedy if he'll have another drink. It's nobody's business how much he's had already.)
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To: RWR8189

The fella Stossel mentions in the article is Burton G. Malkiel, who I think is still around. I've got a well-worn copy of his "A Random Walk Down Wall Street" which is one of the best primers on investing for the individual around, several editions/printings.


24 posted on 05/17/2006 7:30:05 AM PDT by Freedom4US
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To: joylyn

I'm kind of a fan of Cramer...I don't get cable, so haven't seen his show, but I read his autobiography, "Confessions of a Street Addict," I think it's called, very entertaining.

He comes on the Glen Beck show at times, which is weird, since he's a liberal, but him and Glen seem to get along.

In any case, I usually enjoy Cramer's comments on the market and the folks who are in it.


25 posted on 05/17/2006 7:34:08 AM PDT by Sam Cree (Delicacy, precision, force)
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To: oblomov
Good advice. Most people (i.e. those who are able to spend fewer than 3-5 hours a week keeping up with their investments and financial news) are probably better off simply buying a well-designed portfolio of ETFs or no-load mutual funds, rather than trade.

Also suggest using dollar cost averaging with no-load, low expense funds that have shown solid returns over the long run.

26 posted on 05/17/2006 7:34:19 AM PDT by Starboard (Liberal superiorists hate the system that allows average people to make more money than they do.)
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To: RWR8189; rhema

BTTT


27 posted on 05/17/2006 7:49:22 AM PDT by Caleb1411 ("These are the days when the Christian is expected to praise every creed except his own." G. K. C)
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To: RWR8189

I made the determination a long time ago that none of these clowns have the slightest idea of what they are talking about. They make a good guess once in a while and they are lionized for awhile then forgotten. There is more money to be made by these charlatans by pronosticating than investing in the market. And they are mopping up.


28 posted on 05/17/2006 8:49:24 AM PDT by RichardW
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To: RWR8189
Don't know squat about the market but I do know that the daily spin, i.e.: "yesterday the market sank on reports of...., the market rose on reports of.... and the market declined due to profit taking" are obviously no more than pulling a slip from the hat of useful, if inaccurate, phrases that the media uses to make stupid people think they are getting reliable news.
29 posted on 05/17/2006 9:01:12 AM PDT by pepperdog
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To: Sam Cree

Yea I like Cramer too . I think he said he voted for Reagan in the 80's. He did a good job a few weeks ago of slapping Timmy Russert down on MTP about oil profits. In fact the whole table of experts went real quite after he suggested the Exxon Mobile CEO salary was worth a heck of alot more than Kattie Couric's. It was sight to see Timmy's face after that comment.


30 posted on 05/17/2006 9:08:25 AM PDT by The South Texan (The Democrat Party and the leftist (ABCCBSNBCCNN NYLATIMES)media are a criminal enterprise!)
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To: Hardastarboard

Same reason Einstein and Lindberg (to give two extremes) were clueless about politics.


31 posted on 05/17/2006 9:44:00 AM PDT by MeanWestTexan (Many at FR would respond to Christ "Darn right, I'll cast the first stone!")
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To: RWR8189

bttt


32 posted on 05/17/2006 11:02:14 AM PDT by groanup (Shred For Ian)
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To: monocle
1. One risk one seldom mentioned is the risk of withdrawal. If the the stock market is in a bear phase and one is required to withdraw funds, one's capital is disproportionally diminished.

How is this different from having to liquidate loser stocks that your idiot pump-and-dump churn-o-matic broker got you into?

2. Many studies promoting index funds use historical indices to prove the wisdom of investing in such funds. What these studies rarely mention is that indices are constantly by dropping some stocks while adding new stocks.

Yes, and a properly managed index fund will do likewise. So? The return is the same, minus the relatively trivial expenses associated with getting rid of the old stocks and investing in the new. And it's not "constantly" dropping stocks, it's occasionally dropping stocks.

Still way cheaper than your typical churn-o-matic full service stockbroker, like the one who turned my grandfather's millions into chump change for his heirs and hundreds of thousands of dollars of commissions for himself.

3. One should pay close attention to the starting and ending dates of the studies mentioned in point 2 above.

I don't care about short term gains or losses. Dollar-cost average, buy and hold, and don't pay for crooked stockbrokers' yachts, that's my motto. I'll be buying low-fee index funds from the Vanguard and Fidelity web sites regularly for the next 30 years, and I will never sell any of it until I retire. A very few shrewd or lucky traders of individual stocks will do better than I. Most will do worse. Many will do far worse.

-ccm

33 posted on 05/17/2006 11:05:46 AM PDT by ccmay (Too much Law; not enough Order)
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To: DH
I also love to ask them if they are such an "expert" why are they working for a living. They should be rich beyond belief.

Hear, hear! The only investment "advice" worthy of the name is now considered insider trading.

-ccm

34 posted on 05/17/2006 11:07:18 AM PDT by ccmay (Too much Law; not enough Order)
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To: ccmay
I'll be buying low-fee index funds from the Vanguard and Fidelity web sites regularly for the next 30 years, and I will never sell any of it until I retire

Oh, and I also like exchange-traded funds like SPDR and MDY now that I have a bigger pot of money to invest. I haven't bought an individual stock in several years.

-ccm

35 posted on 05/17/2006 11:09:48 AM PDT by ccmay (Too much Law; not enough Order)
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To: DH
I also love to ask them if they are such an "expert" why are they working for a living.

For the same reason you have to "call" the Psychic Hotline.

36 posted on 05/17/2006 1:58:49 PM PDT by thulldud ("Muslim Community Leaders Warn of Backlash from Tomorrow's Terrorist Attack")
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To: The South Texan
"In fact the whole table of experts went real quite after he suggested the Exxon Mobile CEO salary was worth a heck of alot more than Kattie Couric's. It was sight to see Timmy's face after that comment."

Outstanding!

37 posted on 05/17/2006 5:27:43 PM PDT by Sam Cree (Delicacy, precision, force)
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To: Individual Rights in NJ
All time I am up 8,000 dollars. That is over 4 years playing no more then 300 bucks a trip. But I have had some really good rolls, and when I have bad ones I leave and go home right away. Sees to be a good system.

Stop-loss systems like that don't work. Long term, you *will* lose. But as long as you're having fun and can afford it, no great harm.

38 posted on 05/17/2006 5:37:41 PM PDT by ThinkDifferent (Chloe rocks)
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Comment #39 Removed by Moderator

To: Individual Rights in NJ
But what is it about the stop loss systems that do not work?

For every craps bet you make, the house has a mathematical edge. Over a short period of time, it's not uncommon to beat the odds and come out ahead. But that gets less and less likely the longer you play, and how you split up your sessions has no effect.

Think of flipping a coin that's slightly unbalanced so that it comes up heads 51% of the time. Flip it 100 times and you could easily get more tails than heads. Flip it a million times and it's virtually certain there will be more heads. And it wouldn't make any difference if you did the flips in separate sessions and "stopped" a session whenever you had 10 more heads than tails.

40 posted on 05/18/2006 1:13:00 PM PDT by ThinkDifferent (Chloe rocks)
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Comment #41 Removed by Moderator

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