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Stock gurus

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ritholtz

The document discusses the habits of ineffective financial gurus and experts. It outlines seven techniques they use to appear successful and attract followers, such as coming across very confident, only providing vague predictions, and taking credit for wins while ignoring losses. It notes that following these experts' advice often means systematically making poor investment decisions. Research shows financial analysts, money managers, and economists frequently underperform chance in their predictions.

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August 5, 2005 The 7 habits of highly effective financial gurus Sure, I know that Behavioral finance shows how we are Forecasting is really hard especially when financial experts consis- hard-wired to make the wrong decisions, so you are talking about the future. To make it tently fail to pick winning Ill pander to those emotions with assurances easier, Ill forecast the past. stocks or time the market that Ill know when to get in or out of the Tell my followers Im beating or long-term interest market or individual stocks. Ill promise both the market rates. outstanding performance and lower risk; Everyone says they are beating the market And sure, I know that even though I know Ill deliver just the oppo- so Ill have to say the same. Not a problem, Im no better than those site. its not like Im a mutual fund that has to claiming to be gurus. But ALLAN Forecast the past report the sad facts. that doesnt mean I ROTH Cant be a guru without the Monday Ill just make up some data and present havent entertained fan- Morning Quarterback technique. Like the some misleading evidence such as comparing tasies of being one of the famous stock pickers previous technique, I will appeal to that in my results to the wrong index, unadjusted for you see on CNBC. people that causes us to be drawn to winners dividends, of course. Im counting on people If I were a financial guru, Id be the best and avoid losers, such as running toward an believing what they want to believe. because Ive studied the best. up market and away from a down market. Here are the seven things that Id do to make sure that I was one of the most sought after financial geniuses. You may want to see if your guru is following these techniques to How much did we pay the gurus last year? get you to believe that he is smarter than $350 Billion dollars, about the size of the US budget deficit. the market. Come across very sure of myself Unlike the poor weather forecasters and sportscasters who have to answer for their picks almost immediately, Ill have the luxury of making my forecasts knowing that no one will remember what I actually said, and that there are no organizations that track my picks. Without accountability, I can afford to be cocky. Give numbers and dates, but never both at the same time I call this the It Could Happen tech- | $220 Billion Bankers and Brokers nique, where I can say anything is under or | $70 Billion Direct Fund Costs over valued as long as I dont make the crit- | $15 Billion Pension Management Fees ical error of straying into the specific, such as | $15 Billion Annuity Commisssions saying the Dow will hit 12,000 by the end of | $25 Billion Hedge Fund Fees this year. Ill be vague with a capital V so | $5 Billion Financial Advisor Fees even the rare person tracking my brilliant Source: The Motley Fool predictions cant prove me wrong. Brag about my winners Fear and Greed are powerful motivators, Call myself a Contrarian Also called the Pay No Attention To The and Ill play on both. Being a contrarian is in. No matter what Man Behind The Curtain technique, where Ill tell people to buy stocks after they have I predict, I can put a spin on it to make me I trumpet my winners to the rooftops and gone up and sell after they have gone down. look even more contrarian than all the other sweep my losers under the nearest carpet. Further, Ill explain why they performed as contrarians. Statistically, if I make enough picks, some will they have and extrapolate into the future, Ill have a staff comprised of one chimp profi- have to be right. even though it doesnt actually work. cient at throwing darts at the financial pages, and Appeal to my followers emotions Sure I know that this means Ill be sys- another at flipping coins. Research has shown they This is one of my favorites, the Trust Me tematically recommending buying high and are actually better than the pros because they are technique. Ill say I put my investors interests selling low, but Ill look brilliant! not impacted by human emotion. first because its really easy to say. Maybe Ill I think Mike Anderson, Colorado Springs go by the name Honest Al. assistant city manager, is right when he says, Continued
August 5, 2005 I can already picture my interview on the Today show, with ally works isnt all that exciting. Katie Couric of course. Look for me at cocktail parties, Ill be the one Whether your financial guru is on TV or managing your money, surrounded by crowds of people hoping for a hot stock tip, or a chance take a look as to whether he is employing some of these same habits. for me to take their money. They are often meant to separate you from your money. Its not really exploitation to take investors money as long as I make Allan Roth is a CPA and Certified Financial Planner. He is the them feel really good about it. founder of Wealth Logic LLC, an hourly based financial planning and Back to Reality! licensed investment advisory firm and is an adjunct finance faculty OK, this fantasy has been really fun. I have to face it that Ill never member at the University of Colorado at Colorado Springs. He can be on TV showing people how to get rich quick because what actu- be reached at 955-1001 or ar@DareToBeDull.com. How did the gurus perform? I asked Jonathan Clements, writer of the long-standing Getting Going column for The Wall Street Journal, if anyone actually tracked these predictions. He responded, As far as I know, nobody tracks the predictions of the Wall Street talking heads who offer daily predictions on TV and in the financial media. Thats a shame, because these guys are nothing more than high-priced coin flippers. Heres a sample of their performance: Wall Street Analysts Money Magazines Ultimate Stocks with the most SELL ratings from Investment Club the Wall Street Analysts far outperformed Money magazines top 24 money man- those with the most BUY and HOLD rat- agers gave their best stock picks, which ings every year for the last four years. under-performed the market as a You would have done far better by whole by nearly 14 percent over doing the opposite of their rec- the next year. These were the ommendations. best picks of the money man- Zacks Investment Research as agers with the best long-term reported by The Wall Street success records. Journal. Wealth Logic LLC. Americas Top 50 Economists The Wall Street Journal semi-annual survey of the top 50 economists has correctly forecasted the DIRECTION of long- term interest rates only 30 percent of the time far less than the coin flipping method. Economists recent confusion as to why long-term rates havent risen is nothing new! Bianco Research LLC Conclusion If you just cant ignore the gurus, try doing the opposite of what they recommend.

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Stock gurus

  • 1. August 5, 2005 The 7 habits of highly effective financial gurus Sure, I know that Behavioral finance shows how we are Forecasting is really hard especially when financial experts consis- hard-wired to make the wrong decisions, so you are talking about the future. To make it tently fail to pick winning Ill pander to those emotions with assurances easier, Ill forecast the past. stocks or time the market that Ill know when to get in or out of the Tell my followers Im beating or long-term interest market or individual stocks. Ill promise both the market rates. outstanding performance and lower risk; Everyone says they are beating the market And sure, I know that even though I know Ill deliver just the oppo- so Ill have to say the same. Not a problem, Im no better than those site. its not like Im a mutual fund that has to claiming to be gurus. But ALLAN Forecast the past report the sad facts. that doesnt mean I ROTH Cant be a guru without the Monday Ill just make up some data and present havent entertained fan- Morning Quarterback technique. Like the some misleading evidence such as comparing tasies of being one of the famous stock pickers previous technique, I will appeal to that in my results to the wrong index, unadjusted for you see on CNBC. people that causes us to be drawn to winners dividends, of course. Im counting on people If I were a financial guru, Id be the best and avoid losers, such as running toward an believing what they want to believe. because Ive studied the best. up market and away from a down market. Here are the seven things that Id do to make sure that I was one of the most sought after financial geniuses. You may want to see if your guru is following these techniques to How much did we pay the gurus last year? get you to believe that he is smarter than $350 Billion dollars, about the size of the US budget deficit. the market. Come across very sure of myself Unlike the poor weather forecasters and sportscasters who have to answer for their picks almost immediately, Ill have the luxury of making my forecasts knowing that no one will remember what I actually said, and that there are no organizations that track my picks. Without accountability, I can afford to be cocky. Give numbers and dates, but never both at the same time I call this the It Could Happen tech- | $220 Billion Bankers and Brokers nique, where I can say anything is under or | $70 Billion Direct Fund Costs over valued as long as I dont make the crit- | $15 Billion Pension Management Fees ical error of straying into the specific, such as | $15 Billion Annuity Commisssions saying the Dow will hit 12,000 by the end of | $25 Billion Hedge Fund Fees this year. Ill be vague with a capital V so | $5 Billion Financial Advisor Fees even the rare person tracking my brilliant Source: The Motley Fool predictions cant prove me wrong. Brag about my winners Fear and Greed are powerful motivators, Call myself a Contrarian Also called the Pay No Attention To The and Ill play on both. Being a contrarian is in. No matter what Man Behind The Curtain technique, where Ill tell people to buy stocks after they have I predict, I can put a spin on it to make me I trumpet my winners to the rooftops and gone up and sell after they have gone down. look even more contrarian than all the other sweep my losers under the nearest carpet. Further, Ill explain why they performed as contrarians. Statistically, if I make enough picks, some will they have and extrapolate into the future, Ill have a staff comprised of one chimp profi- have to be right. even though it doesnt actually work. cient at throwing darts at the financial pages, and Appeal to my followers emotions Sure I know that this means Ill be sys- another at flipping coins. Research has shown they This is one of my favorites, the Trust Me tematically recommending buying high and are actually better than the pros because they are technique. Ill say I put my investors interests selling low, but Ill look brilliant! not impacted by human emotion. first because its really easy to say. Maybe Ill I think Mike Anderson, Colorado Springs go by the name Honest Al. assistant city manager, is right when he says, Continued
  • 2. August 5, 2005 I can already picture my interview on the Today show, with ally works isnt all that exciting. Katie Couric of course. Look for me at cocktail parties, Ill be the one Whether your financial guru is on TV or managing your money, surrounded by crowds of people hoping for a hot stock tip, or a chance take a look as to whether he is employing some of these same habits. for me to take their money. They are often meant to separate you from your money. Its not really exploitation to take investors money as long as I make Allan Roth is a CPA and Certified Financial Planner. He is the them feel really good about it. founder of Wealth Logic LLC, an hourly based financial planning and Back to Reality! licensed investment advisory firm and is an adjunct finance faculty OK, this fantasy has been really fun. I have to face it that Ill never member at the University of Colorado at Colorado Springs. He can be on TV showing people how to get rich quick because what actu- be reached at 955-1001 or ar@DareToBeDull.com. How did the gurus perform? I asked Jonathan Clements, writer of the long-standing Getting Going column for The Wall Street Journal, if anyone actually tracked these predictions. He responded, As far as I know, nobody tracks the predictions of the Wall Street talking heads who offer daily predictions on TV and in the financial media. Thats a shame, because these guys are nothing more than high-priced coin flippers. Heres a sample of their performance: Wall Street Analysts Money Magazines Ultimate Stocks with the most SELL ratings from Investment Club the Wall Street Analysts far outperformed Money magazines top 24 money man- those with the most BUY and HOLD rat- agers gave their best stock picks, which ings every year for the last four years. under-performed the market as a You would have done far better by whole by nearly 14 percent over doing the opposite of their rec- the next year. These were the ommendations. best picks of the money man- Zacks Investment Research as agers with the best long-term reported by The Wall Street success records. Journal. Wealth Logic LLC. Americas Top 50 Economists The Wall Street Journal semi-annual survey of the top 50 economists has correctly forecasted the DIRECTION of long- term interest rates only 30 percent of the time far less than the coin flipping method. Economists recent confusion as to why long-term rates havent risen is nothing new! Bianco Research LLC Conclusion If you just cant ignore the gurus, try doing the opposite of what they recommend.