Toss the Talkers

The world we currently live in is one that is chock full of people who talk.  They talk about politics, they talk about economics, they talk about finance, and they talk about investments.  For anybody foolish enough to press a “subscribe” button on their website, you will be treated to a never ending barrage of marketing copy and other forms of self serving drivel.

Although there is great variation in the style and nature of talkers and prognosticators, they each bear a similar characteristic that makes them equally dangerous and equally useless.

This critical factor is that they do not face any penalty if their predictions are wrong.

Because of this, they can create predictions with the greatest of self-centered overconfidence.  They can cherry pick the times when they happened to predict something that happened, and completely ignore every prediction they made that was wrong.  By bearing no risk, they pay no price by making bad judgments, and end up staying around long after they should have been ushered to the dust bin of history.

Thus, all of the “gurus” like Thomas Friedman, Joseph Stiglitz, Harry Dent, Porter Stansberry, and any other slick sounding person wearing a suit who tells you what to do is worse than useless.  Regardless of whether they are telling you that Fannie Mae has no risk of default, whether they are saying that the government health care act will not increase the deficit, or whether they are telling you to buy a certain stock, the result is the same.  A person with none of their own “skin in the game” is telling you to trust them and make a decision where they are not hurt if they happen to be disastrously wrong.

This applies to corporate executives and hedge fund managers also.  Where is their risk?  When Robert Rubin made sowed the seeds of Citigroup’s bankruptcy, he received a huge bonus … a bonus he was not required to pay back when they were bailed out by the government.  When a hedge fund manager has a successful year, they reap huge rewards.  When they lose all of the client’s money, they walk away.  When government administrators go to work for law firms and investment banks for the express purpose of helping them to get around the very regulations they helped to write, they receive all of the benefit, and the public bears all of the cost.  Anybody who has upside, but no downside is a poison to the overall market and economy.

What Does This Mean To Me?

What this ultimately means to each of us is that we should be more selective where we go for analysis, advice, and insight.  More the the point, “Talkers” are literally the worst place that any person can go to for meaningful insights on the decisions that they should make in their financial lives.  Unless an investment guru shows me what he purchased, and when he purchased it, I have no way of knowing if he is anything other than a charlatan.

Consider that all of the marketing copy, all of the email campaigns, and all of the advertisements you see attempting to convince you to do something or invest in something needs to be created by somebody.  With all of the effort that many newsletter publishing businesses invest into their sales copy, it’s a wonder that they have any time left over to conduct investment analysis.

And there’s the rub … many of the “insights” and “recommendations” you will receive from these paid newsletters is nothing more than very average investment advice and very elementary strategies wrapped in a very elaborate marketing package.

This begs the natural question that if something needs to be marketed heavily, how good can it really be?  There is some marketing that is intended to inform, and there is other forms of marketing designed to “hook” the audience and attract them to your product.  However, simple logic dictates that anybody who needs to “hook” customers like a fisherman is not acting in the best interest of those customers.  Otherwise, they could sustain their business from referrals, informational marketing, and other methods of providing positive value instead of perpetual advertising.

Who Should I Trust?

At this point, many people are wondering who they should trust?  Since we have already figured out who NOT to trust, let’s look at the exact opposite of what we are trying to avoid:

  1. Look for somebody who follows their own advice.
    • You want to work with a person who “eats their own cooking” and is investing in the same assets they tell you to invest in, at the same time when they are telling you to invest.  Likewise, you want to work with somebody who will tell you when they are selling so that you can cash out before you get burned by a market correction.
  2. Look for somebody who does not advertise heavily.
    • Seek out people who offer value, instead of heavily advertise.  The more pomp and circumstance you need to append onto something, the less substance is really there.  True value can stand on its own.  It will not always be the first thing recognized, but it will not go unrecognized indefinitely.
  3. Look for somebody who will not attempt to apply a “hard sell” technique.
    • The last thing you want is somebody who is going to try and twist your arm to close the sale.  This is the most sure sign of somebody who is more interested in your money than in you.
  4. Look for somebody who will provide advice that results in their making less money.
    • One of the sayings on wall street is “don’t be sore, buy some more” … this refers to the constant exhortation on the part of financial advisers to their clients that they should perpetually buy.  Notice that there is no conversation about whether the market is over-valued, and it would be a good time to take some profits and keep their powder dry for when an inevitable correction happens.  Any adviser who never advises you to sell is simply looking to line their pockets with commission checks … at your expense.

These are not hard and fast rules, but they are highly powerful guidelines.  When you are looking for financial or investment advice, and run across somebody who meets all four of these guidelines, it means that you should pay attention.

The unfortunate truth is that our wold is full of vultures and charlatans who feed on the collective trust of the populace to enrich themselves and pass the bill on to the public.  As individuals, we do not have the power to stop this activity outright, but we do have the ability to make sure we are not personally entangled in it.  Thus, each encounter you have with a “talker” should not focus on what they are saying, but what they do to back it up.

If the actions don’t support the words, then the conversation should be very short.