Scary Headline

Scary Headlines and Bad Advice

When Crying Wolf is Profitable

I was listening to the car radio the other day and hear an ad by someone who was predicting the end of the financial word.  After listing the all the things that will go wrong, he promised that if you invested with him you could enjoy all the gains of the stock market but would not risk losing a penny.

Sound too good to be true?  Of course it is, but it works by appealing to people who want to believe that there’s such a thing as a free lunch.

But Retractions Aren’t Profitable

I was reminded of that radio commercial when I read this article by Gil Weinreich at Seeking Alpha:

 


All investors are looking for astute analysis, but in order to appreciate it when you see it, it is worthwhile considering what bad analysis looks like. Jeff Miller does just that, critiquing analysts who make spurious connections between long-term economic trends and specific portfolio recommendations.

I’ve seen scary headlines to this effect offering “sell now”-type advice in 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017 up until today. Even though such analysts had all kinds of valid concerns, investors following the serial bad advice have missed out.

When seeing representative articles from this genre, I ask myself what manner of benevolence prompts a writer to offer ever fresh warnings of doomsday. What’s going on with these analysts? Jeff hits the nail on the head. I quote in pertinent part:

Their business model seems to be one of supporting the insatiable appetite for confirmation bias from investors who have misjudged the market. Unfortunately, many average investors stumble on these sources and take the material seriously. They do not know about past errors or track records.

You never see a retraction or admission of an error. The only clue is that these sources monetize their audience with a ‘solution’ to fear – gold, annuities, a no-fail trading system, or some other seductive, high-commission product.”

The point is a critical reader must understand not just what an author’s main point is, but what is his interest in writing the article. This is not to say that someone with a point of view and a business interest should be ignored. Such a combination often prompts very good content. But understanding these elements can help you evaluate the analysis. Is it tendentious or is it instructive? Strong financial communicators educate; salesmen agitate.


There is so much bad advice generated by the media that it pays to ask what’s in it for the advice-givers.  Too often it’s a fat commission on a product that is deceptive.

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