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Dan Solin: Business Week or "Business Weak"?

December 23rd, 2009, 03:12 am admin Leave a comment Go to comments

Does selling magazines justify harming investors by writing irresponsible articles about the financial markets? Apparently, Business Week believes it does. At the end of each year, it shamelessly publishes its “Investment Outlook” for the following year. Unfortunately, this year is no exception.

In its “2010 Investment Outlook,
Business Week peers into its crystal ball and tells investors to “figure out where wealth is being produced and grab a piece of it.” It doesn’t believe the U.S will have a “robust economic recovery”, in contrast to China or Brazil.

Its most irresponsible advice relates to stock picking. Here’s the data it uses to entice its readers to engage in this discredited practice: “An investor who miraculously managed to select the top 10 stocks in the world in each market sector each year for the eight years through December 2008 would have had a cumulative return of almost 7,000%.” Raise your hand if believe anyone did that.

The article encourages stock pickers to “roam the world for candidates.”

Before you rush out and start “roaming the world” for under priced stocks, let’s look at the track record of Business Week.

On December 20, 2007, it advised investors “Where to Put Your Cash in 2008.” The article was based on interviews with seven stock market analysts. It was a stellar group, including the Chief Investment Officer of UMB Financial, the Chief U.S. Equity Strategist of Citigroup, the Chief Investment Strategist of Strategas Research Partners, the Chairman of Schaeffer’s Investment Research, the Chief Investment Officer of BNY Mellon Wealth Management ( “wealth management” is a term that usually means the transfer of wealth from your pocket to your advisors), the Chief Investment Strategist of Banc of America Securities and the Chief U.S. Equity Strategist of UBS Investment Research.

Surely these leading investment experts were able to predict the worst market crash in fifty years, right?

Their predictions of where the DJIA would end in 2008 ranged from a low of 14,400 to a high of 15,300.

The DJIA closed at 8,776 on December 31, 2008.

In retrospect, some of the predictions of these “experts” are amusing, in a perverse way.

One expert predicted 2008 would bring “sustainability of robust earnings.” Citgroup’s Chief Strategist (a title which, in retrospect, seems like an oxymoron) advised investors to “buy beaten down financial and retailing stocks.”

Financial stocks lost 58% of their value in 2008.

Business Week extolled the virtues of one of its experts, noting that he was “rated as one of the best market strategists by Institutional Investor magazine” and that he had a “strong following among the sophisticated investors who run pensions and endowments.” How could you go wrong relying on a stock guru with those credentials?

He noted the “odds of a recession are low” and believed “U.S. stocks are a good buy in comparison with bonds.”

The recession of 2008 was the worst recession since the Great Depression. The S&P 500 fell 38.5% in 2008. I wonder how strong his following remains with those savvy managers of pensions and endowments.

Business Week could add credibility and strength by interviewing real “financial experts”, like William Bernstein, John Bogle, Burton Malkiel, Jonathan Clements, Jason Zweig, Michael Edesess, Eugene Fama and many others who would caution investors against relying on those who believe they can pick stocks or time the markets. Failing that, it should voluntarily add the kind of warnings mandated on cigarettes like: “Relying on these predictions can be harmful to your financial health.”

Otherwise, Business Week should change its name to “Business Weak.”

Dan Solin is the author of The Smartest Retirement Book You’ll Ever Read.

The views set forth in this blog are the opinions of the author alone and may not represent the views of any firm or entity with whom he is affiliated. The data, information, and content on this blog are for information, education, and non-commercial purposes only. Returns from index funds do not represent the performance of any investment advisory firm. The information on this blog does not involve the rendering of personalized investment advice and is limited to the dissemination of opinions on investing. No reader should construe these opinions as an offer of advisory services. Readers who require investment advice should retain the services of a competent investment professional. The information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell any securities or class of securities mentioned herein. Furthermore, the information on this blog should not be construed as an offer of advisory services. Please note that the author does not recommend specific securities nor is he responsible for comments made by persons posting on this blog.

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