I’ve been writing this blog for about 5 years now, and anyone who has had the endurance to follow me for this long probably can identify my overarching theme – Investing is not as easy as it looks – do your homework before investing or get professional help. In this era of 24/7 news coverage of the financial markets, it might appear tempting to conclude that all one needs to do is listen to the free advice offered by the “experts” quoted in the media to make a killing in the markets. As I often suggest, there is nothing as potentially costly as free advice…
A quick check of some of today’s postings on Seeking Alpha (a popular financial markets website) yielded the following investment recommendations:
1) Buy master-limited partnerships
2) Sell bonds
3) Buy U.S. treasury bond exchange-rated funds
4) Buy the yen
5) Buy single family houses
6) Buy companies selling SUVs in China
7) Buy gold
8) Sell gold
9) Buy emerging market debt, but only in local currency
Without commenting on the merits of any of these “recommendations,” I would submit that a portfolio based on all of these ideas would be a messy hodge-podge indeed. This is the key problem with most bits of free investment advice – no context. Successful investing, in my view, starts with a plan or a goal. Investing in something just to make money may be an acceptable notion, but it is unlikely to lead a person to his or her long-term financial and life goals. In addition to having a plan, being adequately diversified in one’s investments and having some program for risk management are other necessary components of a successful investment approach.
Way too much of the capital markets commentary I see out there feels like snake oil sales. Laying aside the possibility of pure humanitarian altruism, why would someone give you valuable, actionable and profitable investment advice for free?
Thus was my surprise so great when I heard something I deemed to be very valuable offered for free to everyone listened. The source was David Einhorn, a very vocal (and quite successful) hedge fund manager, whose public pronouncements can often impact stock prices. In my opinion, his motivation in speaking publicly about stocks seems obvious – he wants others to join with him in the trades he has already made. People seem anxious to play along, and we can often see a stock move up or down based on Mr. Einhorn’s views on it.
So, it was very refreshing to hear him say at a recent conference, “It doesn’t make sense to blindly follow me or anyone else into a stock.” He added, “Do your own work.” I couldn’t agree more. I see too many individual investors trying to invest as a sideline or a hobby with limited resources and limited understanding of the principles involved. I hear countless stories of someone buying a stock because of a newspaper or Internet article, a “tip” from a relative or friend, or the compelling comments of a “guru” on television. This ought not to be.
Find a plan, diversify and monitor risk. Absent this, hire a professional. If you still want to “invest” like Jim Cramer, open up a small account (one that will have no significant impact on your net worth) and as my son often says, “Follow your heart.” Actionable or not, I’ve heard much worse advice…