Chapter 16

Selecting Investing Resources Wisely

In This Chapter

Overcoming information and advice overload

Evaluating investing resources

Deciphering online information and guru claims

In the past, sifting through financial information was much simpler, mainly because the available resources were limited. Today’s investor faces information overload. Radio, television, magazines, newspapers, books, the Internet, family, friends, neighbors, and cabdrivers — everywhere you turn, someone is offering investing opinions, tips, and advice. You can’t pick up a newspaper or magazine or turn on the television or radio without bumping into articles, stories, segments, and entire programs devoted to investment issues. Blogs on the topic continue to sprout like weeds during the dog days of summer.

Because investment information and advice is so widespread and constantly growing, knowing how to sift through it is just as important as hearing what the best resources are today. When chosen wisely, the best investing resources can further your investment knowledge and enable you to make better decisions. Throughout this book, I name the best investment resources that I’m familiar with, but in this chapter, I explain how you can separate the good from the mediocre and awful.

Dealing with Information Overload

Early in the year 2000, one of my clients, Roseanne, called me in a near panic. She said, “Eric, I’m not satisfied with my investments. Why are so many of my friends doubling and tripling their money in technology stocks, and my mutual funds are going nowhere? Everywhere I turn, people are talking about these high-growth companies. I want my piece of the pie, too!” I explained to her that many of her diversified mutual funds held some technology stocks as well as stocks in many other industries. I also reminded her that because she was nearing 50 years of age, she had a healthy helping of bonds in her portfolio as well.

She urged me to put her money in some technology stocks and technology-focused funds, but I stood my ground. I further encouraged her to read this book (the second edition was out at the time), wherein I highlighted technology stocks as a bubble waiting to burst (see Chapter 5). I’m glad that Roseanne followed my advice, and now, years later, she is, too. During the severe stock market decline in the early 2000s, technology stocks got clobbered, but other market segments (such as bonds and value-oriented stocks) actually increased in value.

A major reason so many people were talking about making money with technology stocks was that so many media outlets (radio, television, websites, and so on) were talking about these investments and other personal money management issues around the clock. All this talk logically makes one wonder why everybody in the media and publishing world is putting out investing information. Has money become that much more complicated over the years? Are there simply more media and publishing executives who want to help us?

The following list explains some of the reasons investing has become such a hot topic:

• Communications options are expanding. Over the years, the number of television channels has mushroomed as a result of cable and satellite television. Flip through the channels at any hour of the day, and you see infomercials that promise to make you a real estate tycoon or stock market day trader in your spare time. Similarly, the explosion of the Internet has introduced a whole new medium. Now, at a relatively low cost, anybody can “publish” online. The accessibility of these communications mediums allows nearly everyone with an animated personality or access to a computer to appear to be an expert. These newer communications options are primarily structured around selling advertising rather than offering quality content.
• A rough decade combined with a panic. The 2000s were the worst for U.S. stocks since the Great Depression. The decade featured two severe bear markets, the second of which (in 2008) culminated in a panic. Because many folks invest through retirement accounts such as IRAs and 401(k)s, heightened stock market volatility gets more attention.
• Economic change breeds uncertainty. Global competition and technological advances are causing most industries to undergo dramatic changes in much shorter periods of time. Fear of job loss and financial instability run high in people’s minds. Economic change and widespread cynicism about Social Security’s ability to provide a reasonable retirement income to baby boomers has also caused many to seek investment guidance.
• Investment choices and responsibilities are increasing. Most employees today are forced to take responsibility for saving money for their retirement and deciding how to invest that money. In the past, more employers offered pension plans. In these plans, the employer set aside money on behalf of employees and retained a pension manager who decided how to invest it. All the employees had to do was learn the level of benefits they had earned and when they could begin drawing a monthly check.

  With today’s retirement plans, such as 401(k)s, employees have to educate themselves about how much money they need to save and how to invest it. In addition to mastering retirement planning and investment allocation, individuals face a dizzying number of financial products, such as the thousands of mutual funds that are on the market.

Read the next section to find out how you can filter out the best information and advice and skip the rest.

Separating Financial Fact from Fiction

Just because more sources than ever offer investing advice doesn’t mean that you should read, listen to, or watch all of it. In fact, most of the advice out there can easily steer you in the wrong direction. So in this section, I offer prescriptions for how to intelligently choose among all the available financial content.

Understanding how advertising corrupts the quality of investment advice

The first rule for maximizing your chances of finding the best investing information and advice is to recognize that there are no free lunches. Too many people get sucked into supposedly free resources when looking for information.

The Internet is packed with scores of “free” investing sites. And if you turn on your television or radio, you come across mountains of “free” stuff. Of course, someone is paying for all this “free” content, and it’s all available for some reason. Most of the free Internet sites are run by investment companies or someone else with something to sell. What these sites give away is nothing but subtle and not-so-subtle advertising for whatever products and services they sell. Advertising also foots the bill in the vast majority of cases involving free investment advice on TV and radio.

As I discuss in Chapter 18, many investing and personal finance books also contain subtly veiled advertisements. Some “authors” choose to write books that are the equivalent of an infomercial for something else — such as high-priced seminars — that they really want to sell. Such writers aren’t interested in educating and helping you as much as they’re seeking to sell you something. So for example, an author may write about how complicated the investing markets are and some indicators he follows to time investments. However, at the end of such a book, the author says that investing is too complicated to do on your own and that you really need a personal investment manager — which, to no great surprise, the author happens to be.

Whether in print or on the Internet, television, or radio, advertising often compromises the quality of the investment advice it accompanies.

I won’t say that you can’t find some useful investment resources in mediums with lots of advertising. In fact, you can find some good investing programs on radio and television and some helpful investing sites on the Internet. However, these resources are the exception to the rule that sources with lots of advertising contain little valuable information and advice. Likewise, just because some publications have advertising doesn’t mean that some of their columnists and articles aren’t worthwhile.

In the following sections, I outline the problems that advertising can cause within all the media outlets.

Influencing content

Many organizations, such as newspaper and magazine publishers and radio and television stations that accept ads, say that their ad departments are separate from their editorial departments. The truth, however, is that in most of these organizations, advertisers wield influence over the content. At a minimum, the editorial environments at these organizations must be perceived as conducive to the sale of the advertiser’s product.

The stock market cable television channels, for example, carry many ads from brokers catering to investors who pick and trade their own stocks. Furthermore, such stations carry ads from firms that purport to teach folks how to make big bucks day trading (see Chapter 5). Not surprisingly, such stations offer many “news” segments on their shows that cater to stock traders and condone and endorse foolish strategies, such as day trading, instead of condemning them. Instead of asking themselves what’s in the best interests of their viewers, listeners, and readers, executives at too many media and publishing firms ask what will attract attention and advertisers.

Corrupting content

In most organizations, advertisers can have a direct and adulterating influence on editorial content. Specifically, some media organizations and publishers simply won’t publish negative comments about a major advertiser. And sometimes they highlight and praise investment companies that are big advertisers.

More than a few publications have attempted to edit out critical comments that I’ve made about companies with lousy products. These companies always turned out to be advertisers in the publications. Some editors simply say they don’t want to bite the hand that feeds them. Others are less candid about why they remove such criticism. The bottom line is still the same: Advertisers’ influence prevents readers, viewers, and listeners from getting the truth and best advice. (By the way, I don’t write for organizations that edit my work in such a fashion.)

Recognizing quality resources

With the tremendous increase in the coverage of investing and other personal money issues, more and more journalists are writing about increasingly technical issues — often in areas in which they have no expertise. (This type of reporting is true in traditional print publications but especially so online.) Some writers provide good information and advice. Unfortunately, others dish out bad advice. You probably aren’t so willing to take medical or legal advice from non-experts, so why would you care any less about your money?

How can you know what information is good and whom you can trust? Although I can suggest resources that I hold in high regard (as I do throughout this book, especially in Chapters 17, 18, and 19), I recognize that you may encounter many different investment resources and need to understand how to tell the best from the rest. The answer to the question, dear reader, rests in educating thyself. The more knowledgeable you are about sound and flawed investment strategies, the better able you are to tell good from not-so-good investment resources.

The best thing to do when you encounter a financial magazine, newspaper, website, or other resource for the first time is to scrutinize it. The following sections suggest some investigative work you should do before you take anyone’s investment advice.

Following the money

All things being equal, you have a greater chance of finding quality content when subscriber fees account for the bulk of a company’s revenue and advertising accounts for little or none of the revenue. This generalization, of course, is just that: a generalization. Some publications that derive a reasonable portion of their revenues from advertising have some good columns and content. Conversely, some relatively ad-free sources aren’t very good.

Figuring out their philosophy and agenda

Deciphering an author’s philosophy and agenda is important to determining whether she provides quality information. Readers of my books, for example, can clearly understand my philosophies about investing. I advocate buying and holding, not trading and gambling. I explain how to build wealth through proven vehicles, including stocks, real estate, and small-business ownership. My guiding beliefs are clearly detailed on the Cheat Sheet in the front of this book.

Unfortunately, many publications and programs don’t make it as easy for you to see or hear their operating beliefs. You may have to do some homework. For example, with a radio program, you probably have to listen to at least portions of several shows to get a sense of the host’s investment philosophies.

Red flags include publications and programs that make investing sound overly complicated and that imply or say you won’t succeed or do as well if you don’t hire a financial advisor or follow your investments like a hawk.

Considering whether the information is constructive

Just about everywhere you turn these days — radio, television, and the Internet — you can get up-to-the-minute updates on financial markets around the globe. Although most investors have a natural curiosity about how their investments are doing, from my experience, the constant barrage of updates causes a loss of focus on the bigger, more important issues. In many cases, publishing and media companies report what I call the “noise” rather than the news of the day. Some companies are far worse about doing so than others.

Over the next week, take a close look at how you spend your time keeping up with financial news and other information. Do the programs and publications that you use most heavily really help you better understand and map out sound investment strategies, or do they end up confusing, overwhelming, and paralyzing you with bits and pieces of contradictory and often hyped noise? I’m not saying that you should tune these resources out completely, but you should devote less time to the noise of the day and more time to self-education. How can you do that? Read some good books (a topic that I discuss in detail in Chapter 18).

Investigating their qualifications

Examine the backgrounds, including professional work experience and education credentials, of a resource’s writers, hosts, or anchors. If such information isn’t given or easily found, consider this secrecy a red flag. People who have something to hide or lack something significantly redeeming about themselves usually don’t promote their backgrounds.

Of course, just because someone seems to have a relatively impressive background doesn’t mean that she has your best interests in mind or has honestly presented her qualifications. For example, Forbes journalist William P. Barrett was skeptical of financial author Suze Orman’s biographical and business claims. He investigated and presented a sobering review of Orman’s stated credentials and qualifications in Forbes magazine, revealing that they were largely exaggerated. A writer for The San Francisco Chronicle later substantiated this fact.

Examining gurus’ claims

The tremendous growth in media outlets, such as through cable television, radio and television programs, and lots of websites, means that more pundits are making claims about the value of their predictions. Such activity also tends to increase after a major event, such as the severe recession and stock market decline and associated financial crisis in 2008. In the aftermath, many gurus claim “I told you so” status. Unfortunately, many publications and media outlets that interview and give airtime to these pundits fail to independently investigate most of such claims.

In Chapters 17, 18, and 19, I detail how to evaluate various claims. I also provide a short list of worthwhile resources. (Also visit the “Guru Watch” section of my website, www.erictyson.com, for analysis of many of the popular gurus in the media today.)