Driving home a big
lesson on the street
I couldn't believe my ears. I had turned on the television in my office to see what the gurus were saying about the recent downturn in the market. A net loss of over 600 point on the Dow Jones Industrial average in three days and a drop under 10,000 for the first time in five months will command the attention of any financial professional.
The recent drop in the markets did not surprise me. Many professionals have stated that the markets had yet to hit bottom and one of the signs would be a period just like we have had in the last few days. I was, however, surprised by the reaction of some of the financial press Thursday morning.
Normally we get reaction comments from the financial press as well as the professional advisers. I certainly gave my point of view Wednesday evening, analyzing what happened in the markets and why it happened. To tell the truth, it's not too hard to sound smart. If the Japanese market falls before the U.S. market opens and investors tell you that they are worried about that fact, it's pretty easy to say that the drop in the Japanese market contributed to the drop in the U.S. markets. The hard part is telling them what they should do about it.
The reason that it is so hard is because every investor is different and you can't give appropriate individual advice in a TV interview or a newspaper article. It is a lesson that the financial press has had to learn the hard way. For the years since the onset of CNBC and the financial media destinations that have emerged to fill the insatiable appetite of the growing mass of investors, the financial media have taken something of a "buyer beware" attitude toward the consumer of their news. They have given lip service to the commandments that most advisers live by:
Don't put money into stocks unless you are prepared to leave it there for a minimum of three to five years.
Diversify your portfolio to lower the short-term risk of the stock market.
Determine your own personal risk level and stay within it.
These are just a few. You hear them talk about these things periodically, yet it is almost always sandwiched between someone touting the next hot stock that should be in everyone's portfolio and someone else telling you why you should dump one entire industry and buy another one before the close of the market. The sad thing for me to watch over the years has been the people I know who will do whatever the press tells them to do.
It's not hard to figure out why many in the press have been so quick to "sell the sizzle" of the investment world. Can you imagine an entire network dedicated to the investment world that didn't sell the sizzle? Every morning you would turn on the television and hear someone say, "Well, I think that most people ought to stay where they are." Then the host would ask, "What do you think about XYZ stock?" and the guest professional would say, "I guess it would be good for some investors, but for other investors it just wouldn't work. ... Depending on your risk tolerance you may or may not want to buy it."
Then the host would say, "Let's go to the floor of the New York Stock Exchange and see what's happening before the bell." The reporter would say, "There are a lot of traders getting ready for the day. Some are buyers, some sellers; but that doesn't really matter, because most individual investors shouldn't get caught up in the day-to-day fluctuations of the markets. They should be long-term holders and not pay much attention to what goes on down here." I don't think they would have nearly the market share that they have by touting the latest and greatest of the financial world.
This day was a bellwether day, however. On CNBC's Squawk Box Thursday morning, host Mark Haines asked his guest host, Jim Cramer of TheStreet.com, if he was sorry that he had encouraged investors to invest on their own, without the help of professionals over the past few years. I did not get the answer I expected. Cramer said he was sorry. Mark Haines looked as if he had misheard the answer and asked the question again. Cramer went on to say that he had truly believed that investing on your own was comparable to going to a home improvement store to learn how to fix something and then going home to do it.
He believed that individual investors could learn it on their own. He no longer thought that to be true and said that he was sorry to have misled the public. His apology sparked great discussion over the balance of the show.
One of the comments that stands out in my mind came from Kathleen Hays, who said the "media experts" often have talked about a certain stock as being a "good investment" at this time, when they really mean that it would be a "good trade." She went on to accurately describe a "good trade" as being much different than a "good investment" in most people's minds.
I am impressed with people who admit their mistakes. I have always liked Jim Cramer and this week he earned my respect as well. It is unfortunate that the market had to go down so much before sparking such a frank discussion. I hope it helps, although during the very next program I heard two analysts within minutes of each other; one said to buy utilities, the other said to sell them. What to do, what to do?
I leave you with another thought from Jim Cramer. He said, "I have often compared investing to playing a football game, but it's much more important than football."
Scott Reed is first vice president of Hilliard Lyons in Tupelo and a financial columnist.