Reasonably Critical

I am often accused of being unreasonably critical of the majority of the financial services industry. I partially agree with this characterization; I am critical. With good reason, as the majority of the financial services industry is hazardous to your wealth.

This week, we’ll start with some of the most popular outlets for financial information and investing advice. How often have you seen anything even resembling the following:

A half-hour on Fox Business devoted to proper asset allocation using no-load mutual funds?

Regular programming on the dangers of buying individual stocks on Bloomberg TV?

An occasional mention that most of the investment advice given on CNBC is really no different than gambling tips with an air of legitimacy?

A Money magazine article stating that most of  their “Best Funds for 2014” will likely be among the worst performers over the next few years?

A columnist for the Wall Street Journal (with the exception of Jason Zweig) telling you, over and over again, that Wall Street is one street that even adults shouldn’t play in?

Instead, on Fox Business today (Wednesday, April 9, 2014) we have Stuart Varney asking if the high-tech market is about to repeat 2000-2001 (the Dot.Com Crash).

My response: Who cares? A properly allocated, well-diversified investor knows that some parts of the market fall, others rise, and nothing is predictable. 

Bloomberg TV recently featured an attempt to predict the flow of money between stocks and bonds.

Given that money is always flowing between stocks and bonds, most investors should hold both; shorter government securities for pure safety, and stocks for their hefty historical risk premium.

On Tuesday, CNBC wondered if “investors” could “trust market bounce?” Whatever that means.

Real investors barely think about market bounces. It’s what markets do. They fall and then they bounce. Yet, because the markets are tied to the growth of the human economy, they have defied physical gravity throughout recorded history. That has meant that the bounces have been bigger than the drops.

In the April issue of Money, you can “learn how to profit from the rebound in public sector debt.”

If you are looking to “profit” from bonds then you are a speculator. Bonds do not create wealth. They are merely designed to provide income for the term of your loan (when you own a bond you have lent someone your money). The value of a bond fluctuates up or down based on current interest rates and the perceived quality of the borrower. They do not become more inherently valuable.

Finally, according to the Wall Street Journal, closed-end funds “have appealing traits” as long as you’re aware of the risks.

The long-term returns on closed-end funds are very similar to comparable regular (open-end) funds with an extra helping of risk and additional layers of opacity. Plus, they are generally actively managed.

An open-end fund is priced at the underlying value of the securities in the portfolio. Closed-end funds trade on exchanges (they’re the ancestor of the ETF). That means that some trade for less than the net-asset value (NAV - the actual value of the securities in the fund) and some trade for more. Good luck figuring out the emotions behind market valuations.

As one who reads (watches, and listens to) most of the financial media, I rarely find valuable financial advice in the “press.” It’s too boring and simple. Knight Kiplinger (editor-in-chief for all of the Kiplinger publications) once told me that, if he printed nothing but information on what he personally believed was the best way to invest (using a low-cost, passive, massively diversified portfolio of mutual funds) he would be out of business in short order.

There are some great sources of financial knowledge in the media; they’re just a bit harder to find (and, no, I don’t just mean us). I share of few of those in the post entitled “Sources of Sage Advice