The Myth of the Market Guru

Family Update

Things sure have changed since I was growing up. My son now walks around with an earbud in, talking to his girlfriend, and half the time we can’t tell whether he’s talking to her or to us. We can hear half of their conversations, and I'm pretty sure she can hear a lot of what's going on at our house, too. It’s a strange new dynamic, but I guess this is just how life works now.

The Lanai Orchid Extension is moving along… slowly. They originally told me six to eight weeks, but we’re two months in, and all that’s happened so far is a giant hole in the backyard and an impressive pile of dirt.

We finally got our new family couch. It wasn’t supposed to arrive until Christmas, but in a small miracle, the store called saying they could deliver it early. I was thrilled as they set it up, and everything looked perfect. Then my wife walked in, took one look, and said, "That’s not the right color." Uh-oh. Now the exchange is scheduled… but we already have four cats with claws fully loaded, eyeing this thing like prey. So the couch is currently buried under sheets and blankets as we try to keep it in pristine shape until the replacement arrives.

Everybody has an opinion about which way the market is going to turn. One group of people I take issue with are the prognosticators who say things like, "Microsoft is a great buy right now. Stay away from Visa; the fundamentals don't look too good."

You see this stuff everywhere: magazines, newspapers, radio, TV, and, of course, all over the internet. It makes normal people, like you, say, "This is so complicated. I want to invest, but I have no idea what to do."

That reaction breaks my heart, because the supposed "complexity" is a lie.

Investing is not complicated.

Think about this for a second. Bob and Jenny Jones buy and rent houses for a living. They’ve become extremely adept at finding good opportunities in their area. One day, Jenny finds a steal. It’s an older home that needs a lot of TLC, but it’s in a growing neighborhood, and the price point is perfect to maximize rent at the lowest cost.

Jenny shows Bob excitedly. "Let’s jump on this before anyone else finds out!"

Now imagine Bob goes on Facebook and posts:

"I’ve found a great rental house. It’s at 450 Main St., and it could be a fantastic investment. I’m going to try to buy it before anyone else. You’d be crazy not to buy this thing. I’ve been doing this forever. I know the market inside and out. This is priced at least $50,000 below market. Easy money."

Does that make sense?

Why would Bob run around telling everyone about this kind of opportunity? Wouldn’t he want to keep it quiet? The more people who know about it, the worse the opportunity becomes for him.

Now, let’s take that idea to Wall Street.

A "super fancy Wall St. guy" who works for JP Morgan goes on TV and says, "We have a strong buy rating on Coca-Cola. Our research shows that their new initiatives will increase market share worldwide. We believe this is the best buy of the thousands of stocks we monitor."

Why would they tell us this?

If they truly think it’s such a great opportunity, why doesn’t JP Morgan just quietly buy as much Coca-Cola stock as they can for themselves? They have plenty of money. Why not keep it a secret?

You don’t see Warren Buffett holding a press conference and saying, "In a month, I plan to buy 30% of Heinz’s outstanding stock. It’s an incredible value." Of course not. Announcing that would drive the price up and ruin the opportunity.

You might think, "Well, maybe they already own the stock and are just trying to pump it up so it goes higher."

That’s called market manipulation. It is very, very illegal. The SEC takes this kind of thing seriously, and with today’s technology, it’s easier than ever to track.
So maybe, you might say, "These guys are just trying to help us make better decisions."

Yeah. Right.

Here’s what’s really going on.

By showing up on TV, these guys build the reputation they need to attract investors, from whom they collect fees. It makes almost no difference whether their specific predictions come true. Nobody tracks it. All people remember is, "I saw that guy on TV, he must be an expert." In their minds, he becomes "legitimate," and his opinions suddenly feel important.

In many cases, the media exposure itself is bought and paid for. A short interview on a financial network can cost serious money. That’s how valuable this kind of visibility is for Wall Street firms.

On the other hand, the networks need to fill airtime with more commercials to make more money. So the cycle continues: Wall Street gets attention, the networks get content and ad revenue, and you get…confused.

You lose because:


•It plants the idea that you don’t know what you’re doing.
•It plants the idea that you should constantly adjust your investments.
•It scares you into doing nothing at all because you’re afraid of making a mistake.


Don’t let yourself be manipulated.

Put your money into a diversified portfolio of stocks and bonds and invest for the long term. When you see one of these fancy guys in a suit on TV, say to yourself, "I’m on to you. You’re not going to trick me anymore. The more I watch you, the worse off I will be."

Be Blessed,

Dave