Hot Stock Pick? (Or Cold)
For those of you who know me, you realize by now that I am a passionate guy. I passionately want people to live their best-retired lives possible, and that all starts with sound financial planning. One thing that really gets my blood boiling is anything that derails my clients from living their best life.
And oftentimes, my anger is directed toward the financial media.
Don’t get me wrong, the financial media is not innately evil or working against you. But here is an ugly truth they don’t want you to think about: they only exist is to sell advertising.
It takes a lot of content to fill all those hours on TV and radio programming, and much of the time the financial media is propagating ideas that are not only wrong but harmful to your financial health.
In fact, I find myself spending a lot of my time helping people tune out 95% of the noise out there that does nothing to help their financial futures. If anything, the overload of superfluous information costs you money.
5 myths the financial media wants you to believe. And why you shouldn’t. Myth #1: If you don’t pay attention to the markets, your investments will suffer.
Of course CNBC wants you to believe that following the markets on a minute-to-minute basis is important—how else can they keep you watching all day?
I think Warren Buffett put it best: “I would tell (people) don’t watch the market closely… The money is made by investing and by owning good companies for long periods of time. If they buy good companies, and buy them over time, they’re going to do fine…If they’re trying to buy and sell stocks, and worry when they go down a little bit … and think they should maybe sell them when they go up, they’re not going to have very good results.”
Myth #2: You need to listen to the “super-smart Wall Street guys” in order to be a successful investor.
Nope. Not remotely true.
In fact, the longer I manage money for clients, the less I listen to anyone’s “opinion” on the markets. Here is an article I found from a couple of years ago titled, “It’s Going to Collapse: 5 Scary Stock Market Predictions For Smart Investors.”
What is so comical is the fact that this article was written in 2017. The markets have doubled since then. If you were one of the poor souls who read this article you would have missed out on a big run in the markets.
Nobody knows when the stock market is going to go up or down. There has not been a single human being in history who has been able to consistently predict the ups and downs of the markets.
Every once in a while one of these guys gets lucky and guesses right. They then proceed to promote that fact for the rest of their lives. If you are right once and wrong 100 times, why does the financial media keep interviewing you? (Spoiler alert: It’s about filling air time.)
Myth #3: Market experts know why markets go up and down.
I hear it all the time … the market drops a few hundred points and the media has all kinds of rationales. “Bad unemployment numbers came in.” “Chinese currency fluctuations are affecting exports.” “Instability in the Middle East is unnerving investors.”
I have a counter-cultural truth for you here. The vast majority of the time, nobody, not even after the fact, truly knows why the markets went up or down.
They can hypothesize as to some reasons why it might have fluctuated, but at the end of the day, no one ever knows for sure. The reality is, most movements in the market come from irrational human fear and greed. And human behavior is notoriously hard to predict.
Myth #4: It is important to continually buy and sell stocks inside your portfolio to maximize returns.
Here they go, filling air time again.
If Jim Cramer were honest, he would say, “These stocks might go up or might go down. Nobody really knows. But what we do know is that a long-term, disciplined strategy has proven to be incredibly effective at building wealth.”
Of course, if he actually admitted that, there would no longer be any reason for him to have a show. Bad for Cramer, bad for advertisers.
Better for you.
By the way, people have been tracking Jim Cramer’s picks for years, and according to studies, you would have been better off putting all of your money in the S&P 500 and just letting the money sit. “Cramer Picks” underperformed the market as a whole. Not to mention the cost of trading and the impact of taxes can be substantial when you are constantly buying and selling stocks.
Myth #5: Financial advisors watch the financial media to get the information they need to help their clients.
No, we don’t.
I can’t speak for everyone in my field, but I can say that I have never met a fellow advisor who buys and sells stocks based on what some guy on Fox News Business says.
With the advent of the internet, a universe of information is readily available at the fingertips of anyone with a cell phone. Nobody is going to say something on TV that hasn’t already been revealed and researched by thousands of investors on the internet.
This is a big reason why the concept of a “hot stock tip” seems so antiquated. There really is no such thing anymore. Now, if anything, my main job is to help my clients determine what they need to save and what they can spend. It’s about planning, not frantic buying and selling.
The other part of my job is sifting through the deluge of information my clients (and all of you) are subjected to, and discern what is actually relevant. Ninety-five percent of the financial information you receive is just noise. The rest just pushes you off course.
It’s important to recognize what the financial media is: Entertainment. Nothing more and nothing less. Don’t let them derail you from sound planning and long-term investing.
Be Blessed,
Dave
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