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.
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..
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.
You're preaching to the choir here. I bought Intel low but forgot the "sell high" part before the 2000 Clinton stock market crash.
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.
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.
Also suggest using dollar cost averaging with no-load, low expense funds that have shown solid returns over the long run.
BTTT
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.
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.
Same reason Einstein and Lindberg (to give two extremes) were clueless about politics.
bttt
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
Hear, hear! The only investment "advice" worthy of the name is now considered insider trading.
-ccm
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
For the same reason you have to "call" the Psychic Hotline.
Outstanding!
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.
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.
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