Just as surely as there will be an article entitled “Lose 10 lbs On 10 Minutes A Day” or “Easy Abs For You” on the cover of Men’s Health magazine this month, there will also be an in big letters “Six Stocks To Own Right Now” or “5 Mutual Funds To Protect Your Money” on the cover of one of the personal finance magazines this month. I guarantee it!
Why? Because “Low Cost Index Funds A Good Idea… Again” every month would get very stale and would stink at selling magazines! In addition, even the construction of the articles themselves is very predictable. It’s almost like they use a Mad Libs form (remember those?):
1. Give me the name of a recently successful mutual fund manager.
2. Give me the name of a formidable-sounding management company.
3. Throw out a mutual fund name, and its impressive recent track record.
4. Make a very vague but pleasant-sounding stock-picking strategy.
5. Give specific stock or mutual fund names, and corresponding stories that mesh well with said strategy.
6. Weave it all together into an article like so:
—
3 Bargain Stocks
Matthew Hughes may not look the part, but at the helm of BlackStone Partners, his BlackStone Carleton Value Fund (BSCVX) has outpeformed the S&P 500 by 10% annually in the last 6 years. The key, Hughes says, is to “purchase solid, long-term companies which have had recent short-term missteps. By taking the larger view, you can avoid getting distracted from the core fundamentals.”
Here are three stocks that the BlackStone Carleton Value Fund recently purchased:
FTH Holdings, Inc. – The largest oil tanker holding group on Latin America, FTH Holdings (FTH) has seen it’s stock price drop 20% recently due to management squabbles over whether to expand into oil exploration. However, it’s primary function of transporting oil between the Mid-east and South America remains solid, with earnings increasing an average of 28% a year for the last 5 consecutive years. Even with recent decreasing oil prices, demand remains high. “We don’t care about the price of oil – as long as people still consume it, we will make money transporting it”, CEO Arian Sanchez proudly states.
(continues on…)
—
See? It’s easy to write a personal finance article. Don’t you want to buy some shares of FTH right now? Well, you can’t. In fact, you can’t even buy any of BSCVX. It’s closed to new investors. And old investors it turns out, as I just made all these names and stories up. But it sounded convincing, didn’t it?
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Your mad-lib is great! And so true!
Like with so many industries; personal finance magazines won’t make any money if they write about how easy personal finance can be (spend less than you earn, put the rest in index funds).
They have to make it seem complicated so people keep buying their goofy magazines. I still read “Money”, because I think it has some decent more-down-to-earth articles (like things to watch out for on a lending statement), but other magazines are just full of stock-picking and fund-picking nonsense.
Since my wife read this and said “What’s your point?”… I guess it wasn’t very clear.
First, let me say that I read Kiplingers and various other magazines whenever I can get a heavily discounted rate on them. (See eBay.) They often have other very useful articles. But the point is that magazines are telling you what you want to hear, instead of what is the best advice. Just like it’d be nice if I could have a six-pack by doing crunches 10-minutes a day, it’d be nice if I could get great unknown stock tips from a $3 magazine distributed around the world.
There is simply no data that shows that stock tips from magazines will give you any sort of improved return. If there was, THAT would be on the front cover. On the other hand, there is a ton of data that says that the two most important facets of investment returns are asset allocation and investing costs – both of which can be easily taken care of using low-cost index mutual funds or (properly used) index ETFs.
Now if you want to use these articles as a starting point for some real research, that’s fine. I am open to some *limited* exploration in individual stock buying myself.
This is hilarious. Just like, “eat less and exercise more” on every Men’s Health cover, and “How to get the guy” on every cover of Cosmo would not sell many magazines.
Case in point about personal magazine covers….Money, Kiplinger’s, and Smart Money all had ‘How to Retire Rich and Make your Money Last Forever in Retirement’ on their covers in the last 30 days.
Love your post. Pithy, witty, and straight to the point. I’ve spent more time debunking some specific Barron’s articles (yep, even that venerable newspaper puts out similar info), but your mad lib really drives the point home to readers!
I want to put my money in someone elses company! Where do I start. What is a good website to go to were people need investors! I want To put my money there but I want them to pay me back with a 25% Intrest! Thats not bad at all! Let me know if the nates good enough and if you know some one who needs an investor.
Articles in those magazines are nothing but “financial pornography”. Nice to look at (or read), but in general there is nothing worth remembering.
Well according to this study,
Indexing works best in bull market; use active funds in bear
a new study by Robert Kosowski at Imperial College in London shows active managers regularly beat their indexes by as much as 3% — in down markets. Their record of underperformance is caused entirely by what happens during a bull market, the study concludes.
link
Do not savings accounts beat active managers in bear markets?
From the article:
And how exactly without 20/20 hindsight do you know if you’re in a bear or bull market, and how do you know if it’s about to change from one to another? 😕
After figuring that one out, which actively managed fund do you pick? They may beat them on average during that specific period, but since returns vary so widely, how to you get the average?
Sounds like a lot of hot air to me.
Great article. Could not agree more. If I may add, financial planners fall into same category. Each one I talked to had a script with a standard answer that you will make between 8 and 10%.
Nice post… another thing that you’ll *never* see in those articles is the fund’s tax-adjusted return. And frequently the benchmark they are comparing the fund to is completely inappropriate. God forbid they start reporting risk-adjusted, tax-adjusted returns to an ignorant and gullible public.
this is really funny