Why you can’t believe everything you read, see, or hear in the financial news.
So the market has been going up now since 2011 without a correction of 10% or more. That has a lot of people worried. “The market is near all time highs” I am told, “it must be time to get out.”
One thing you learn in this business, however, is that nothing “must be”. And truth is, I’ve been hearing very smart people tell me why it is a terrible time to invest in stocks pretty much non-stop almost as long as I’ve been in the business.
The financial media make their living stoking fear and greed in the hearts and minds of investors. What is interesting is that, while we advisors must take great pains to explain that our predictions are not guaranteed, and that anything could happen – the media are under no obligation whatsoever to disclose that they actually are clueless. They can say whatever they want. They can also rely on the fact that 99.9% of readers will forget about any specific prognostication within a few days, so they don’t even need to be right.
Well, just for fun, let’s take a look at what it might have cost you to follow certain “timely advice” from the financial media.
Publication: Money Magazine August 1997.
Headline: Don’t Just Sit There – Sell Stock Now!
Synopsis: The magazine recommended selling 20% of your stock holdings to lock in gains and avoid approaching calamity.
What actually happened: The publication was followed by 3 years of extremely strong gains by the S&P 500, with annualized gains in excess of 25%.
Publication: Business Week, August 13, 1979
Headline: The Death of Equities: How Inflation is Destroying the Stock Market
Synopsis: The magazine claimed that “the death of equities….is a near permanent condition” suggesting that investors should give up on stocks and invest in gold.
What actually happened: $10,000 invested in the broad stock market in August of 1979 would have grown to $190,000 over the next 30 years. A $10,000 investment in gold in 1979 (apx price = $300/oz) would have grown to only $31,350 over the same 30 year period. The nation’s most prestigious business publication at the time couldn’t see that stocks were poised to enter the longest bull market in history. Stocks would post negative returns in just 3 calendar years in the next 2 decades (including 1994 with a paltry loss of -1.4%)
Publication: Money Magazine, April 2004
Headline: Why Ipod Can’t Save Apple
Synopsis: Hindsight is great – but not so great for the writer of this article! Speaks for itself. In fact, I’m surprised they haven’t pulled this article from web out of sheer embarrassment.
What actually happened: $10,000 invested in Apple at $25/share in 2004 would be worth (hold onto your hat) over $380,000 today, only 10 years later! Apple has probably made more people rich than any other stock in American history. Not this reporter apparently.
Publication: Money Magazine, December 2001
Headline: “America’s Safest Stock” “As Close as You’ll Get to Owning an Invincible Earnings Machine.”
Synopsis: I hate to constantly pick on Money Magazine, but who can resist this one? The article touted none other than Fannie Mae as America’s Safest Stock in 2001.
What actually happened: Well, you may already know the rest of the story. Fannie Mae had to be rescued and nationalized by the U.S. government during the financial crisis of 2008. Investors were largely wiped out.
Ok, one more?
Publication: Forbes July 19, 1993
“Bearish on America” “Sell US stocks, buy European and Asian says Morgan Stanley’s Barton Biggs”
Synopsis: Forbes is known to take a conservative political stance, remember Stephen Forbes was a onetime Republican presidential candidate. The position was that Clintonian policies were bad for America.
What actually happened: Stocks (S&P 500) generated a compound return of 18.5% over the next 7 years. Maybe political opinions and investment advice shouldn’t mix?
We could go on and on. As you look back over time it becomes abundantly clear is that opinions expressed in financial media, books, talk shows, etc. regarding the direction of markets or the broader economy are, if not completely useless, then pretty darn close to useless. Don’t invest based on what you read in the media or see on the internet. They are in business to capture readers and viewers for their advertisers, not provide sound investment advice!