Today is going to be awesome. As you may have seen, stock indexes are dropping all over the world. That means that the kooks are coming out today! There will be lots of pundits mouthing off about what this world is coming to. Oh, doom and gloom!
Image from the New York Times.
As you know, I have a very low opinion of Chicken Little Kooks and the media’s horrible performance at predicting economic performance. And I’ve previously written about how hilariously frantic the media behaves during “global corrections.”
So today, I’m going to catalogue the worst financial advice from around the web. If you see something, add a comment!
From this thread on Reddit:
When you buy things like index funds and mutual funds, what do you think you’re really getting? Both the good AND the bad companies, all piled together, with no way for you to separate them. The whole point of buying individual stocks is to minimize the number of bad stock in your portfolio.
Let’s say you buy an index fund, and you also know that there’s a company within the index that is not only terrible, but where you know that they’re about to completely go out of business. You’re watching their stock, and it’s tumbling, day after day. You know what you, as an index fund investor, can do about this? NOTHING! You just sit there and watch that bad stock flush your money down the toilet.
Or let’s say there are 3 industries within the index (manufacturing, technology, and retail), and you know without a shred of doubt that the retail industry is going to take a severe beating for the next several years, and you wish you stopped owning all those bad companies. You have no power! You’ll just watch your money burn, while hoping that the other two industries in the index pick up the slack.
Now, sure, in the end the good stock may outweigh all the bad apples in the index. But the fact that you can’t get rid of the bad apples is also the reason why the profits on these things, while generally consistent, are so low.
If you have the time and the inclination to perform detailed research into where your money is going, and if you’re smart enough to read books on how to do this correctly and minimizing the risks, then buying individual stocks is a great idea, and sticking your head in the ground and buying an index fund or ETFs becomes a gigantic waste of your money.
This Marketwatch column, by Mark Hulbert, is so incredible that I just decided to paraphrase it for you. I strongly encourage you to open it in another window and follow along.
[Updated, 10:58am] From this forum (forums are the best for these kind of quotes):
‘Now and 1987 were very similar.
Of course, things are different.
To be sure, I am not sure what I am saying (and I use double-negatives to confuse you into thinking I am writing something coherent).
Now I am going to quote someone who says something inconclusive.
I will add some quotation marks now.
The “expert” I am quoting says things are pretty good.
But even if they go bad, they won’t be bad.
Ahh, my work here is done.’
[Updated, 6:14pm] Ahh, Fortune, you never fail to tell me your kooky forward-looking predictions. In this delightful article on real estate (“Real estate: Buy, sell, or hold?”), they say the following:
As the bubble market bursts, I predict a recession with an extra added bonus of inflation running close to 10% – before the end of 2008…If Bush continues to shovel shit on the dollar right up to the end of his term in January 2009, the inflation rate could hit 15%-20% by 2010.
Our exclusive calculations can help you figure out what your house will be worth in coming years.
“Exclusive?” Really? This sounds promising! Only a few lines later, they write this:
Take a deep breath. We can’t tell you what your house would fetch tomorrow. But we can help you through the fog of whipsawing prices and vacillating views to develop a clear picture of what your house will most likely be worth in five years or so.
The key word is likely. See, I can predict anything to be “likely” if the time horizon is long enough. For example, I predict that you will likely gain weight in the next 20 years. I furthermore predict that you will likely have gray hair and that you will likely need to take some sort of medicine! HOW DID I DO IT??! I AM A GENIUS!!!!!!!!!!!!
Please add more horrible financial advice you find to the comments. I’m especially interested in finding people who recommend buying gold and tin cans full of oil and butter. They are the best.
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