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Why
"stock-picking" and "market timing" services don't work.
We are often asked this
question about the so-called "gurus", the TV commentators, etc.
Why
do subscribers or followers NOT get the advertised performance in their
own real-life portfolios.
When in fact, many picks and
advice are real portfolio wreckers.
What? Can't be. They wouldn't
stay in business. They certainly would not last long as featured TV
personalities. We started checking. First a call to a CPA
firm. The CPA confirmed our fears -- most individual investors
lose money in their investment accounts! By the way, most make
money in their businesses (thankfully). So we then turned to a few
of the popular TV commentator and Internet Web-zine stock picking and
market timing services to see for ourselves. Here are some just a
handful of examples:
Quite frankly, we are just as puzzled -- how
can they be so wrong, so often?
-
wrong on price
-
wrong as to why
-
wrong as to timing
A handful of examples:
| Stock |
Recommended
Price (approx.) |
Recent
Price (approx.) |
Loss |
| NYX |
120 |
55 |
54% |
| NLY |
20 |
14 |
30% |
| MRVL |
18 |
10 |
44% |
| SNDK |
55 |
22 |
66% |
| BWTR |
10+ |
5 |
50% |
| |
|
|
|
| ENT |
8 |
2 |
75% |
| AAV |
20+ |
10 |
50% |
| MMA |
25 |
5 |
80% |
In response to our subscribers we
offer some possible explanations below.
The examples are actual, not hypothetical.
The names of the persons and services are not used and are really not
relevant to the argument.
We will be updating this section from
time-to-time.
A
time-period is "cherry picked"
A common ploy. This example was taken from a
advertisement on Feb 1, 2008. The small print (look out for the small
print) says "as of December 18,
2007". Obviously, the performance numbers would likely be
much lower today.
"... members with the following gains versus the
stock market's average return as measured by the S&P 500:
Mr. Stock Picker1: + xx.xx%
Mr Stock Picker2: + yy.yy%
S&P 500: + zz.zz%
(results as of December 18, 2007)"
Wrong on direction, or wrong on why
They are wrong almost all of the time.
If they get the price direction right, it is often for the wrong reason.
Or if they get the right reason, they get price direction wrong.
The point is, how can you take advice from someone that is wrong (in
some way) almost all of the time.
Let's take the common start-of-year 2007
predictions for example:
The market would be up. It was (for
awhile).
Why? Lower energy prices were cited. What did oil do?
$60 to $100.
The market would be up. It was.
Why? Lower interest rates. The 10-year in fact shot up to
5.25%.
From Jim Cramer on July 10, 2008:
I know that Miller beat the S&P 500 for 15
straight years, but as Bloomberg pointed out in a great story, the
manager has lost you money since 2003, and you are down 39% year
over year. Astonishing.
I agree that the long-term performance matters.
But five years is long term, and Bill Miller has lost his standing
to be the arbiter of things, particularly things Yahoo!, because no
one kept him from selling the stock at $30 not that long ago, and
much higher even longer ago than that.
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