Financial Pundits – Who Can We Trust?

[Guest fountainhall]

Seeing the price of Apple stock now at around $450 after falling from $702 only a few months ago made me think again on the matter of pundits – those so-called experts who give us their views on investing and where we should put our money. It’s not so long ago that Apple was on everyone’s ‘buy’ list with price targets way beyond $900. Now, it’s been downgraded, and many are saying it’s days, whilst far from over, are numbered.

I am a lousy investor and have made horrible decisions over the years. I do need help, even though I sometimes make my own decisions.18 months ago, I read about a Chinese stock quoted on the Hong Kong market that kind of interested me. Warren Buffett had purchased a 10% stake in a Chinese company named BYD. This makes electric vehicles and one of his executives had a seat on the Board. When Buffet purchased the stock, he got it at around US$1 per share. Within a few months it was worth $8. By the time I noticed it, it was about $5.50.

I kept on looking at it as it went on a roller coaster ride until it had fallen to around $3.50. OK, I thought, if Buffett likes this as a long-term play, maybe I should too. So I bought the smallest lot I could. The price kept falling. I grew nervous. I set various levels at which I’d sell and get out – and let each pass. Eventually, as all Chinese stocks were nearing bottom in the latest cycle, it reached around $1.70 – and I still hadn’t sold! Then a pundit came on television, said the company was a lousy bet and true value of the shares should be around $0.15!

My view then was just to hang on, Sure enough, as Chinese stocks have bounced way back, the share price is now around $3.20. And I’ll keep hanging on, as most China shares are zooming up again. So much for the pundit!

But it made me think about pundits in general and how much notice we take of them. Remember Jim Cramer, the irascible former hedge fund manager and then MSNBC pundit who was heavily promoting the buying of stock in Bear Sterns on TV? On March 11 2009 he screamed, “Bear Stearns is fine. Bear Sterns is not in trouble. Don't move your money from Bear. That’s just being silly”

Three days later, Bear Sterns stock fell 92%. It went belly up a week later. Cramer was then universally lambasted and got an especially critical roasting on Jon Stewart’s The Daily Show. But TV executives have short memories and TV needs its personalities. So it was not long before Jim Cramer was back – and remains back on TV.

For those of us at or near retirement, and especially for those with just minimal pensions (the basic UK pension is all of Bt. 21,000 per month – and falling), how should we protect the savings it took us decades to build up? Who should we trust? Is there actually any investment manager out there who might have our financial interests at heart rather than his own? I am pissed off with money managers who advise me to put something into one mutual fund, only to tell me 6 months later that market conditions have changed and I should now consider another fund! If he was not making an annual fee from my holdings and taking a cut on both the selling and the buying price, I’d be more prepared to take his word. But I really am hard put to trust anyone!

[Guest jomtien]

All of my money is invested with Michael.  This explains the 11 pieces of luggage he needs to travel around.

[Guest fountainhall]

Having closed Michael's thread about Thaksin, I hope he doesn't suddenly now lose a suitcase with some of your money! 

[Guest]

Don't trust any pundits.

 

Take note only of people with outstanding investment track records. The likes of Warren Buffet, Peter Lynch, Seth Klarman, Neil Woodford etc.

 

Then do some reading.  Not the sensationalist stuff, but nice dependable books such as:

1 One of the Peter Lynch books [but read at least one more book before buying anything]

2 "Margin of Safety" by Seth Klarman [Out of print, but google the title with the magic letters pdf afterwards to find a free copy]

3 "The most Important Thing", by Howard Marks

4 "The Great Investors"

 

The first 3 are by people who REALLY know what they're doing.  The last is about people who know or knew what they are doing.

 

Peter Lynch will tell you it's safer to forget the much hyped stocks like apple or even BYD & focus on boring dependable stocks, selling at an attractive valuation (low PE ratio etc).

 

After all that, if you're not confident to select dependable shares, try some investment trusts.  Look for those with a 10 year track record of outperforming their benchmark index AND where the same manager is in charge.  Websites like Morningstar and Citywire work well for UK based investors.

I like AAS & SST as examples.

 

However, be warned.  The US stockmarket has had a good run and you risk "buying high" there.  Similarly, Thailand was one of the best performing markets in the world in 2012.

So if investing now, perhaps it is safer to  invest a sum of money every month & if the market falls, just carry on doing that.  They call this Dollar Cost Averaging in the US. Preferably increase your monthly investment if there are big falls.

Stock market falls are good news if you have money to invest.

[Rogie]

So if investing now, perhaps it is safer to  invest a sum of money every month & if the market falls, just carry on doing that.  They call this Dollar Cost Averaging in the US. Preferably increase your monthly investment if there are big falls.

 

Good advice.

 

I invest £50 ($ eighty) a month into Glaxo Smith Kline shares, using the system Z advocates (Pound cost averaging here in Britain). They have hovered around the same price for years, so no big gains there but the dividends are good, which can be ploughed back into shares which is what I do or taken as income.

[Guest]

For anyone planning to spend a proportion of their time in Thailand, investing that monthly sum into a diversified range of ASIAN assets is reducing your risk of being caught out by devaluation of the Pound, Euro or Dollar. 

 

This also eliminates the risk that comes with single company investment.

 

My theory is if you want to eventually spend 50% of your time in Thailand, put 50% of your portfolio in Asian assets.  Putting 50% in Thailand is way too risky, due to political uncertainties.  

AAS and SST are ideal, although right now is an expensive time to buy those.  Actually a lot of stocks are expensive now.

[Bob]

Taking investing advice from anyone is somewhat risky but, for what it's worth (what you're paying for it?), here goes:

(1)  Everybody ought to strive to have enough liquidity (cash, cd-type instruments) around for at least a year's expenses....and maybe that figure should go up once you are close to or past retirement age.  And, for any money you might need within the next 2-3 years, any investment analyst will tell you not to put that money in the stock market. 

 

(2)  While I have and will on occasion pick particular stocks where I know (or think I know) the companies well, a probably safer bet is to go with mutual funds (which, I'm guessing, is what Fountainhill means by "investment trusts.").  There are records out there that will show you hundreds (thousands?) of mutual funds and their history.  I'd rather invest in a mutual fund that has a long-term history of doing fairly well than a fund that's only done well within the last year or so.  I also tend to like mutual funds that invest in certain spheres (e.g., made a few bucks over the years which focused on China and Southeast Asia).  When selecting a sphere or area to invest in, use your brain to guess what the long-term future of that sector might be.  For example, I think anyone that invests any money in anything to do with print (newspaper companies or book-publishing companies) is, in the long run, going to lose most of that money.  Reasonable long-term bets might involve pharmaceutical companies (given how long people are living these days) and companies producing foodstuffs (even in a recession, ya gotta eat).  If the sector pays a reasonable dividend (2-3% these days), you'll probably do okay over the long haul even if the sector retreats for a while.

 

(3)  Saying "buy low and sell high" sounds pretty stupid but it's just about the opposite of what many investors do.  When the market takes a dive, they pretty much wait until it dives to it's lowest point and then sell.  Then they don't get back in until everybody's giddy about how high the market is (meaning, right before it dives again!).  Over the long-term, the averaging method mentioned by a couple of posters is probably the safest method even if it is a bit boring.  I don't do that but I do get a bit giddy when the market takes a dive (a buying opportunity!). 

 

(4)  And, finally, be lucky.  Hey, it helps!   

[Guest]

An Investment Trust is a British term for a closed end investment company that's structured as a limited company.

These have a fixed number of shares, can borrow money and can trade at a premium or discount to the value of the underlying assets.

 

A Unit Trust is an open ended company that can issue & redeem units.  Management charges are usually higher.

 

The Unit Trust is by far the more popular of the two structures, in the UK.  Probably because in the past they paid more money to financial advisers as commission.  

I currently have no holdings in Unit Trusts whatsoever, but do have money in a number of Investment Trusts.

 

I think the situation is the same in the US, but with different terminology.

[Guest thaiworthy]

All of my money is invested with Michael.  This explains the 11 pieces of luggage he needs to travel around.

 

Only 11? But he paid you zillions of dollars to moderate this board. Is this any way to show your appreciation?

[Guest thaiworthy]

I have a nephew who worked for Edward Jones learning to become an investment counselor. Part of the training was door-to-door canvassing, which he did, cheerfully. He is a bit naive as one so young, but he is earning his stripes as we speak. In the field one day, he came knocking on one door and as soon as he introduced himself, this individual spat in his face. He resigned that night.

 

He spent another year teaching at a local college, then Edward Jones offered him a job as an academic training leader to train people for the job he left earlier. It pays well, and with a baby on the way, he had to accept. He bounces back fairly easily, but he has a few more hard knocks before he realizes the true nature of the game. At least he has some insight into how the game is played and what are the real rules before he goes to play. He is an educated man and if he wants to make money, he is now seated on the right side of the desk. I'm not sure all investors get a fair shake these days. Those lovely variable annuities are packaged just right and affixed with the proper warning label to the effect that funds may lose value, but yet, not to worry. You are in good hands. Kerplunk. Here's my hard-earned cash, see you in 30 years.

 

Well, it doesn't work that way, my friends. I've had that experience numerous times over that 30 years and the fine print on that warning label only gets bigger and bigger. The only people who know the actual risks are the brokers themselves. I trust none of them. I wouldn't spit in anyone's face, but I am justifiably suspicious. A doctor trusts his opinions because he is trained in that field and can heal himself. A car mechanic knows his field, and doesn't need to pay for unnecessary parts he might charge to someone else. Don't take anyone's advice. If you don't know enough about the stock market, don't get into it. It isn't Vegas, but the house does have an advantage. Take any profession you've been trained in and that's the one guy you can really trust, and that's yourself.

 

The market place today is full of hot air. And that is putting it mildly. If you see the 14,000 as a turning point, I hope you are right. But I still believe we are headed for a "double-dip" recession. All that I see and read point to that sad scene.

 

I hope my nephew takes off those rose-colored glasses one day, he hardly needs to wear them. His students won't be spitting in his face. At the very worse, he will have a high turnover of trainees. Just none of them better come knocking at my door.

[Guest]

Any time someone knocks on my door trying to sell something, I generally interrupt them mid way through the first sentence & decline their offer.  They're usually leaving within 60 seconds.

 

Why buy a financial product off someone motivated by commission?    That has obvious potential for conflict of interest. He's motivated by commission & the more  of your money that they take away, the higher his commission.