Financial Surgeon General’s Warning: Following the advice of financial television shows may be hazardous to your wealth. On a recent evening, I was channel surfing when I happened upon a financial advice show being aired by none other than CNBC. Recognizing the guest market expert, I made the mistake of paying attention just long enough to hear an answer to an e-mail question that about made me drop my jaw. His canned reply to the serious question of a viewer was, at best irresponsible, and more likely dangerous for that unfortunate viewer, in my opinion. But here’s what’s really crazy — it seems that for a number of people, television really has come to be a serious source of financial advice. I’m here to tell you in no uncertain terms to tread carefully.
Want proof of that? An entertaining exposé published just a few years ago, Bull! 144 Stupid Statements from the Market’s Fallen Prophets, catalogued a number of now-embarrassing quotes offered by Wall Street’s finest during the halcyon years of the late 1990s. Reviewed through the lens of subsequent history, it becomes quite evident how vapid on-air financial advice generally is.
So, just on the oft-chance that you have forgotten the prevailing attitude toward the market, and the conventional wisdom of the day, let’s take a walk down the memory lane of consumer financial news.
October 1999: James Glassman, author Dow 36,000. “What is dangerous is for Americans not to be in the market. We’re going to reach a point where stocks are correctly priced, and we think that’s 36,000 … It’s not a bubble. Far from it. The stock market is undervalued.” (Outcome — What was he thinking?)
December 1999: Ralph Acampora, Prudential Securities. “I’m not saying this is a straight line up. I’m not saying you can’t have pauses. I’m saying any kind of declines, buy them!” (Outcome — The S&P 500 soon embarked on a three-year decline of roughly 50 percent.)
September 2000: Jim Cramer, Mad Money host. “SUNW probably has the best near-term outlook of any company I know.” (Outcome — Within four months Sun Microsystems dropped from $60 to $30. Down to $10 in a year. Below $3 in two years.)
November 2000: Louis Rukeyser on CNN. “Over the next year or two” the stock market “will be higher, and I know over the next five to 10 years it will be higher.” (Outcome — The market continued sinking, we fell into a recession, and tech lost 70 percent within two years. Still not higher yet.)
December 2000: Jeffrey Applegate, Lehman Strategist. “The bulk of the correction is behind us, so now is the time to be offensive, not defensive.” (Outcome — Wrong. Oh yeah, and Lehman Brothers is now bankrupt).
December 2000: Alan Greenspan. “The three- to five-year earnings projections of more than a thousand analysts, though exhibiting some signs of flattening in recent months, have generally held firm. Such expectations, should they persist, bode well for continued capital deepening and sustained growth.” (Outcome — In 2008 he admitted he was very wrong about almost everything).
December 2000: Jack Grubman, analyst, Salomon Smith Barney. “Worldcom is the one I would buy because it has the least execution risk to get back going, the best set of assets, the best revenue mix and the best balance sheet of the three (Worldcom, Sprint, AT&T).” (Outcome — Over the next two years the share price of Worldcom slid from more than $50 per share to $0.00 per share as the company declared bankruptcy. Grubman quits.)
January 2001: Suze Orman, financial guru. “In the low 60s here, I think the QQQ’s (an ETF for the Nasdaq Index) are a buy. They may go down, but if you dollar-cost average, where you put money every single month into them, I think, in the long run, it’s the way to play the Nasdaq.” (Outcome — You lose. The QQQ security went on to lose an additional 60 percent more by October 2002.)
March 2001: Maria Bartiromo, CNBC anchor. “The individual out there is actually not throwing money at things that they do not understand and is actually using the news and using the information out there to make smart decisions.” (Outcome — the stupidity of this statement speaks for itself; there is nothing more I can say.)
August 2001: Lou Dobbs, CNN. “Let me make it very clear. I’m a bull, on the market, on the economy. And let me repeat, I am a bull.” (Outcome — A little early Lou. The market actually continued to decline for another year as the Dow and Nasdaq lost another 33 percent of their value.)
So there you are. I could go on and on. But you get the picture. Here’s the dirty little secret about financial news media: They exist for one reason — to make money by selling commercial airtime. They are entertainment. Period. Now, that’s not to say that every once in a while there will be an investment tip that is reasonable. That’s happened — on occasion. But generally speaking, when a television talking head has lips that are moving, the viewer is best served by holding on to his wallet tightly. So the next time you stumble across a guru of the day offering investment advice on television, by all means listen. Be entertained. Just don’t be suckered.
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Bo Billeaud has been president and chief investment officer of a Lafayette-based money management firm for the past 18 years. Contact him at [email protected]._