Investing is hard enough but the drumbeat that comes from the financial media tends to knock investors from an approach that can work for them. Why is it so easy for us to get influenced by some guy in a suit on CNBC? Doug Kass writing at TheStreet notes why we can safely ignore “self-confident of view and who provide ready explanations to daily market moves.” He writes:
Why? Because 1) they probably aren’t managing significant amounts of money (and in some cases don’t have any assets at risk at all), 2) their observations are almost always “after the fact,” 3) they explain the turnaround on variables that are just plain dumb (often simply making stuff up), 4) they’re probably trying to sell you something instead of providing value-added investment input, and 5) they never say “I don’t know.”
The investment world and the media that cover it demand endless opinions that most people have limited information on. I describe this as being 3-miles wide and 1-inch deep. Sometimes the respondents just make answers up. Other times the questions and answers are simply scripted in advance and the rapid-fire responses are mistaken for thoughtful and deep analysis. (Which they’re not.)
Kass doesn’t say it but my guess is that he would agree with Nassim Taleb in saying that it is immoral to forecast events without having some very real stake in the outcome. These forecasts are by their very nature calls to action. Every market forecast you hear is an implicit call to buy or sell.
If the people who show up on CNBC issuing forecasts don’t know any more than you do then the proper response, after turning off the TV, is to simply take a deep breath and do nothing. However difficult it may be to do that. We all want to think we can control the world through our actions but that is folly. Anthony Isola at his blog writes:
Just like many doctors who are too impatient to let the body heal itself, traders try to control an outcome due to their anxiety about future unknowns. In both cases, the results will often lead to much worse outcomes than just letting things be.
Often the best strategy regarding investing is to do nothing at all. Though the statistics have proven that more activity lowers returns, investors ignore it because of their incessant search to acquire the illusion of control in an uncontrollable environment.
That is in large part by why giving financial advice to a mass audience is so difficult and very few do it well. The best writers in the investing do their best to give advice that if followed won’t harm an investor along the way. I wrote at the outset of Abnormal Returns on the need for bloggers to take a “financial Hippocratic oath” in the hope that they do more good than harm along the way.
Ben Carlson writing at A Wealth of Common Sense has five thoughts on the challenges of providing financial advice. He closes with one that puts things into perspective. He writes:
You’re never going to save everyone. There are some people that are never going to get it. It’s sad, but true. There will always be investors that can’t help themselves or get out of their own way. I used to think everyone could be saved if they would only learn. But changing behavior is simply too difficult for many. In order for one group of investors to prosper, another group has to fail. It’s an unfortunate truth of the financial markets.
It’s against our better nature to tell people to do nothing. That does not make for good copy. But the fact is that for most investors at most times doing nothing is the right thing to do. Having a plan and sticking to it is tough. As Patrick O’Shaughnessy at The Investor’s Field Guide writes:
I believe the most pertinent question to ask about any systematic/quantitative strategy is not “how hard would this be to replicate” but rather “how hard would this be to stick with.”
The best thing investors can do is put their time, effort and energies in finding a strategy they can stick with. The same goes for those who provide financial advice to a broad audience. This may not sell as well but at least it has some grounding in reality.