March of the Hucksters

Sep 3, 2015 by

stock salesmanCNBC is toxic to small investors (like you and me), but I watch sometimes, particularly if something interesting is going on in the investing markets. As stock price volatility has once again ramped up the past little while, I’ve been watching. In such an environment, I’m interested to hear the pitch of the nearly unbroken string of “pros” CNBC features, working hard now to calm small investors.

Why Rely on Financial Services Industry Salespeople for Advice?

Financial services may be the only industry where the public seems to rely on the industry’s sales force and other insiders for objective advice. And to make matters worse, the advice pertains to one of the more important challenges of our lives: securing a comfortable retirement.

Imagine a television network sponsored by pharmaceutical companies that featured drug salespeople doling out advice on whether consumers should be taking pharmaceuticals and which ones. Such a network would be taken seriously by few (I hope). Yet for reasons mysterious and interesting to me, many, if not most, people appear to rely mostly or even only on financial services industry representatives—people whose livelihood depends critically on small investor engagement with securities markets—for investing advice.

Get Your Investing Advice From a Range of Sources

As I suggested in “Latest Stock Meltdowns“: don’t rely solely on people who earn their living selling and promoting stocks for an understanding of stock investing’s true risks. If people like you stop investing in stocks, the financial services industry insiders you’re listening to will be out of a probably very high-paying job. Expecting objectivity is delusional.

Stock Market Shills

Tuesday (September 1st), with the Dow down over 500 points at times, CNBC really packed its stream of shills and idiots “experts” with those touting a theme of calm and the not so subtle message that only the naive and ignorant sell, ever. Here’s a small sampling, followed by my snarky critique. (Sorry for any advertising message that precedes the interviews.)

“Take cookies when cookies are passed.” Oh yes, Mr. Darst, this is the sort of keen expert insight on which I’m eager to hang my retirement security hat! What’s next—”buy low, sell high”? More seriously, Mr. Darst dismisses, apparently as not meaningful, the “missing thing” of profits. I’m just a lowly typist and Mr. Darst is a Wall Street guru, but somewhere in my personal finance self-education I seem to recall that there is a connection between a company’s profitability and its stock price. But maybe that notion has become quaint in today’s high-powered, cookie-driven stock market.

I’ve never heard so many weather analogies repeated in a market analysis. Perhaps Mr. Darst missed his one true calling: meteorologist.

After first recommending we all immediately dive into this wildly vibrating market head first, he later suggests we “pull back a little bit”—presumably at a loss if we’d accepted his first idea—if it appears a recession is developing.

As I explained through example in my August 27th post, “don’t just do something, stand there” sounds reasonable, but only in theory. For someone contemplating the prospect of their retirement plans being flushed down the toilet, execution becomes problematic. Flushing’s not happening just now, but it surely did in 2008-09, and will again.

Anyone for whom Mr. Buckingham’s condescending “one of the things investors need to keep in mind is that stocks go up and stocks go down” is a revelation should not own stocks, period.

I did find refreshing the interviewer’s rare challenge of this particular pundit’s bombast. +/- 10% volatility on a daily basis is “normal”? This interview is just one small example, but clearly a central aim of Wall Street’s minions these days is to make small investors comfortable with modern markets’ elevated (compared to 20+ years ago) and rising riskiness. So what if your nest egg’s value dropped by 15% last week! That’s just how stocks are—no worries, mate!

Mr. Buckingham’s promotion of his model portolio’s yield of 3% compared to a risk-free 10-year Treasury yielding about 0.8% less borders on criminal in my mind. Yes John, your wonderful portfolio would generate an extra $80 annually, pre-tax, on $10,000 compared to a 10-year Treasury bond. Do you think fees, commissions, and most importantly principal risk should play any role in such a comparison? Ugh. The interviewer fails miserably in this case by not calling Buckingham on his specious comparison.

How pathetic is it to see an individual who has earned a PhD in economics become nothing more than a Wall Street cheerleader and stock pitchman? Selling out is fine—it’s your life—as long as you’re not costing other people money by doing so.

Here’s the sad thing: None of these individuals, or the thousands just like them, will be held to account by CNBC or any other entity if their advice proves costly for investors who accepted it. I would love to see a CNBC segment in which such experts are shown their recommendations of 6 or 12 or 24 months ago and graded on their value. The Nightly Business Report used to do a very modest version of that—when PBS sold out to CNBC, it was of course eliminated in favor of more self-promoting fluff.

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