Why “the experts” confuse the average investor

We have clients in our office every day who love to ask what our opinion is of the market and what are effective strategies to invest and win. Well, we have our opinions but I thought I’d refer to a few experts out there in the financial world to see what they say we should be doing. First, what’s the “attitude” of investors? Let’s see what the numbers say.

The Chicago Board Options Exchange’s Volatility Index (VIX), which tracks the volatility of the market, has dropped significantly; on November 20, 2008, the VIX was 80.86; on September 11, 2009, it was 24.15. So, it appears the market is “calming down” and the investors are too. Not so fast though. There are those who anticipate we’ll need another 12-18 months to gauge the change in the market before any true confidence can be determined.

Randy Carver, a financial advisor with Raymond James Financial, says “We believe the market will move higher over the next couple years, perhaps significantly so, but is likely to go lower before it does” (italics added by me). He sure covered his butt didn’t he?

The Senior Vice President at Raymond James Financial, Sacha Millstone, says, “If you got out of the markets, you have to honestly assess why you did that. Find an asset allocation you can stick with through hell or high water.” Alright, so she feels people were uninformed or made poor decisions if they “got out”.

Uri Landesman, Senior Vice President at ING (they’re pretty big) said this, “[I] don’t blame investors for pulling out of the market, as there was no way to know how far down the market was going.” So we shouldn’t feel bad for getting out? Do we really ever know for sure how “far down” it’s going to go? We knew there would be those who said it was okay to secure your principal and there would be those who said we were stupid. There will always be a variety of opinions (hey, at least someone will be right) but let’s assume that confidence is back, the “doom and gloom” is gone, and people are ready to “get back in”, what then do we do with our money?

Uri Landesman (italics added by me): “…try technology bellwethers (ex: Microsoft, Intel). If you think we’re emerging from a global recession invest in the energy and materials sectors…Investors who aren’t sure about the state of the economy can try investing in the health care sector.” Well, no matter what, he’ll have some clients happy and others who “made the wrong choice”.

John Osbon (founder of Osbon Capital Management): “New waders in the market should invest in a mix of Vanguard Total World Stock Index Fund and Vanguard Total Bond Market Exchange-Traded Fund.”

Vahan Janjigian (chief investment strategist at Forbes): recommends Supervalu, Terex Corporation, and Tesoro Corporation. At least he provided some specifics but he does add the good old qualifiers of “if” and “could” when describing his reasoning.

Jeff Rubin (head of research at Birinyi Associates): “Stock selection is going to matter more instead of sector or some other type of selecting process (high dividend stocks, low P/E or what ever it is). As of now, I continue to stick to strength, such as Apple, Google, Goldman Sachs, JP Morgan Chase.” Okay, so the way of old is no longer. Got it.

Randy Carver: “We feel there is an opportunity in long tax-exempt bonds. We would avoid long taxable bonds, and we would add hard assets/commodities.”

Dave Ramsey (Fox financial pornographer): “Stick with your money markets for short term needs and go with a good mutual fund, like we say over and over, for your long term investments 5, 10, 20 years out.”

Sacha Millstone: “It isn’t about this or that particular investment. It is about a plan and a strategy and overall implementation.” Now I shouldn’t focus on product? These general platitudes have always confused me because my plan MUST pick particular investments and/or products in order to be implemented.

Robert Rodriguez (chief executive of First Pacific Advisors in Los Angeles): “[The economy] will be up and then down, up and then down. We will be far from normal for a very long period of time. People deploying capital will end up destroying capital.” That’s an interesting take. Now I’m really confused on what to do.

David Laibson (economist at Harvard University): “Investors expect that assets on which they personally experienced past rewards will be rewarding in the future, regardless of whether such a belief is logically justified.”

Jason Zweig (journalist for the Wall Street Journal): Responding to Laibson’s comment above said this: “[Buying] more of what has gone up, precisely because it has gone up, is to fall for the belief that stocks become safer as their prices rise. That is the same fallacy that led investors straight into disaster in 1929, 1972, 1999, 2007 and every other market bubble in history.”

How do you sum up all this information? This is only the tip of what we hear everyday on the radio and TV. Some say the economy is rising, some say it’s not, some say it’s flat. We’re told to invest and “suck it up”, we’re told that if we do we’re “destroying capital”, we’re told that we shouldn’t have gotten out, and we’re told we were foolish for doing so. We’re told specific stocks, don’t focus on specific stocks, focus on sectors, don’t focus on sectors, forget stocks and go bonds…AAARRRGGHHH!

An analogy just popped into my head that seems to wrap this all up quite well. It’s like standing on the tee box of a brand new golf course. There is no map of the course and no one has played it before. You’re surrounded by golf club salesmen who have played other courses but never played this one. Some of them have played for many years. Every one of them has an opinion about the wind and the obstacles ahead. Every one believes that their golf club is the right one IF all the factors come together properly (wind, swing, ball, layout of the hole, etc). So what do you do? Do you just pick the one salesman that you like the best and take a swing and hope it works? Dave Ramsey tells us that we should pick the one advisor that “makes us feel good” about our club choice (literally, he says that to us). No matter how hard I love my golf club, no matter how good it makes me feel, if I don’t have the right swing then it still doesn’t do what I want it to do…but at least it made me feel good, right Dave?

What about this choice? What if we worked on our swing first? Now, there’s a radical concept. Or, what if we walked the course FIRST to get an understanding of what we were hitting into? If all we did was ensure our swing was sound and then get a layout of the course, wouldn’t we be better off? Can you imagine what it would be like to NEVER care what the market is doing? Can you imagine what it would be like if you had access to capital that you could invest with a “product salesman” but they only made money IF they made you money?

I sure find it interesting…and so do my clients.

Kelly O’Connor – kelly.oconnor@mtnfinancial.com


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