Evaluating Investment Resources Online and In Print
Everywhere you look or listen, you will find many - too many - investing opinions and advice. Some of it may be great information but not a good fit for you. Much of it is mediocre or downright awful and misleading. In this article, I highlight how to check out investing resources online and in the news and know what to beware of and watch out for.
- Get Educated to Discern the Best from the Rest. With the tremendous increase in the coverage of investing, 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, many others dish out bad or mediocre advice. How can you know what information is good and whom you can trust? You will encounter many different investment resources and need to know how to tell the best from the rest. The answer rests in educating yourself. 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.
- Beware “Free”. Too many folks get suckered into supposedly free resources when looking for investing information and advice. The Internet is filled with tons of “free” investing sites. And if you turn on your television or radio, you come across mountains of “free” stuff. Someone is paying for all this “free” content, of course, and it’s all available for some reason. Most of the free Internet sites are run by investment companies or someone else (for example, small-time money managers) 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. Many investing books also contain thinly veiled advertisements. Some so-called “authors” choose to write books that are the equivalent of infomercials for something else — such as high-priced seminars — that they really want to sell you. Such writers aren’t interested in educating and helping you as much as they’re seeking to sell you something else. So, for example, an author may write about how complicated the investing markets are, saying that investing is too complicated to do on your own and that you really need a personal investment manager like the author.
- Understand the Influence of Advertising. Whether on the Internet, television, in print, or on the 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 media with lots of advertising. These resources, however, are exceptions to the rule that sources with lots of advertising contain little valuable information and advice. 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 minimum, the editorial environments at these organizations must be perceived as being conducive to the sale of the advertiser’s product. The influence of advertisers prevents readers, viewers, and listeners from getting the truth and best advice. Specifically, some media organizations and publishers simply won’t make derogatory comments about advertisers. And sometimes, they highlight and praise investment companies that are big advertisers.
- Value Quality over Quantity. Talk about information overload. You can’t peruse a newspaper or magazine or turn on the television or radio without bumping into articles, stories, segments, and entire programs devoted to investment issues. The explosion of the Internet has introduced a whole new medium. Now, at a relatively low cost, anyone can “publish” content online. The number of television channels has mushroomed as a result of cable television. Flip through your cable channels at any hour of the day, and you see infomercials that promise to make you a real estate tycoon or stock market millionaire in your spare time. These newer communications options are primarily structured around selling advertising rather than offering quality content. The accessibility of these communications media allows just about anyone with an animated personality or access to a computer to appear to be an expert. Much of the advice out there can easily steer you in the wrong direction. 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. Quality is more important that quantity.
- Know How to Check Out a Resource. The best thing to do when you encounter a financial magazine, website, newspaper, or other resource for the first time is scrutinize it. 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 revenue from advertising have some good columns and content. Conversely, some relatively ad-free sources aren’t very good. Deciphering a writer’s philosophy and agenda is important to determining whether he provides quality information. Readers of this website and 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. 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 to be a red flag. People who have something to hide or who lack solid credentials usually don’t promote their backgrounds. Also, don’t blindly accept presented qualifications as honest or truthful. Red flags include publications and programs that make investing sound overly complicated and that imply — or say — that you won’t succeed or do as well if you don’t hire a financial advisor or follow your investments like a hawk.
- Beware Hype and Exaggeration. There’s an old news-media expression, ”If it bleeds, it leads.” Translated, this means that jarring, violent, or blood-and-gore stories attract attention. So often this is the case in financial reporting, too. If the stock market drops quickly or there’s a disappointing economic report, you’re sure to hear about it over and over again. I’m not suggesting that only good news be reported. But frequently, negative events are blown out of proportion and hyped to garner more attention. Don’t get carried away by the hype.
- Don’t Assume Quoted Experts Know Their Stuff. Historically, one way that investment journalists have attempted to overcome technical gaps in their knowledge has been to interview and quote experts in the field. Although these quotes may add to the accuracy and quality of a story, journalists who aren’t experts themselves often have difficulty telling qualified experts from hacks. One common example of this phenomenon is that many investment writers quote unproven advice from investment-newsletter writers. The predictive advice of many newsletter writers is often poor (discussed later), causing investors to earn lower returns and missed investment gains due to frequent trading than if they’d simply bought and held. Journalists who simply parrot this type of information and provide an endorsement that unqualified sources are “experts” do readers an immense disservice.
- Investigate Gurus’ Claims. The tremendous growth in the number of people talking and writing about investing on websites, on cable television, and on radio means that more pundits are making claims about the value of their predictions. Unfortunately, many publications and media outlets who interview and give air time to these pundits fail to independently investigate most such claims. You don’t need predictions and soothsayers to make sound investing choices. If you choose to follow this “expert” advice and you’re lucky, little harm will be done. But more often than not, you can lose lots of money by following a pundit’s predictions. Never accept a guru’s performance claims as valid. These should always be verified through an independent source. Visit the “Guru Watch” section of this website for analysis of many of the popular gurus in the media today.
- Don’t Believe Investment-Newsletter Claims. Especially in the investment-newsletter business, you will see and hear lots of extraordinary performance claims. Private money managers, who aren’t subject to the same scrutiny and auditing requirements as fund managers, can do the same. Be especially wary of any newsletters making claims of high returns. According to the Hulbert Financial Digest, the worst investment newsletters have underperformed the market averages by dozens of percentage points; some would even have caused you to lose money during decades (like the 1980s and 1990s) when the financial markets performed extraordinarily well. Also beware that plenty of gurus and newsletters will tout many strategies, investments and funds and then only continue to hype the one that happens to do well. The strategy or back tested model may in fact have a good track record over a period, but it may be cherry-picked and unlikely to succeed in the future. Don’t believe a track record unless a reputable accounting firm with experience doing such audits has audited it. Stay far away from publications that purport to be able to tell what’s going to happen next. No one has a working crystal ball.