I’ve been a big fan of Men’s Health for over a decade and a half. It seems that in the past few years they’ve sprinkled in a little more personal finance into every issue. The latest one is no exception. One article in particular caught my eye: Build Wealth in Troubled Times. Their idea was to ask a variety of money people (traders, economists, and money managers) and ask them their advice for navigating these difficult financial times. You’ll notice that these are all Wall Street people. You won’t find Clark Howard or Jean Chatzky here. Men’s Health is realistic with the information that they received saying, “Some of their prescriptions are unorthodox and unproved, and just because these experts were right once doesn’t mean they know what’s right for you. On the other hand, whose advice are you taking now?”
I thought it would be worth giving my personal finance spin on their advice.
- Frank Partnoy (Finance professor, University of San Diego school of law)
Frank’s Take: Partnoy focuses on picking stocks of a few companies and being optimistic, “Pick out about a dozen companies that sell products you know and understand, and research them. You’ll still be taking risks, but at least you’ll understand those risks. Buy the stocks and then forget about them.” and “Over the long run, our economy grows… People become better off, and technology improves our lives. If you come out of the blogs and news feeds and look at the arc of history, it’s a story of human beings getting better over time. So stay optimistic.”
Lazy Man’s Response: While the advice to buy and hold equities is a fairly proven mainstream strategy, Partnoy loses points for lack of diversity in number of equities and types and of equities. Just because you know a company, it doesn’t mean that you truly understand the risks. So many things can happen at the management level of a company to that the average Joe probably wouldn’t know about. Blackberry maker RIM comes immediately to mind. Worldcom comes to mind as well. This advice leaves people with no bonds and/or potentially little or zero foreign exposure.
As for being optimistic, it’s good advice, but I don’t see it as financially applicable. It essentially claims that we’ll have a better quality of life over time, which is true. Optimism doesn’t put more moeny in your wallet and it isn’t much of a “financial move.”
Final Grade: C+
- Robert Wiedemer (Economist that predicted “the housing crash, the stock crash, the credit crunch, and the recession”)
- Janet Briaud (moved clients money out of stocks to avoid both the dot-com crash and the financial crisis)
Janet’s Take: “Wait until prices are so low that your friends say they’d never consider buying stocks again, and then buy heavily.” Also “If you’re just starting out in your career… focus on earning more, saving heavily—as much as 20 percent of what you earn—and paying off debt. Are you carrying a credit-card balance at 16 percent? Paying it down is like getting a 16 percent risk-free return on your money.” Finally, if you have an emergency fund and credit card, use the emergency fund to pay off the credit card debt and fall back on the cards if you need to.
Lazy Man’s Response: Not since Janet Jackson’s Love Will Never Do video has a Janet delivered the goods like this. (Is that too much information?) I almost agree with everything 100%. I’m a little on the fence about on the stock buying advice, but I had the same thoughts in 2002 and 2008 when the market was really low. I considered selling every worldly possession to generate more cash to put in the market. If I had bought in at those points gains of 30-50% were pretty easy to come buy. Yep, it’s marketing timing, but it’s not that bad since you are essentially waiting for a sale on stocks. The rest of the advice is spot on and brilliantly condensed into just a few sentences.
Final Grade: A
- Nassim Nicholas Taleb (predicted the Black Monday stock market crash of 1987 and authored The Black Swan)
Nassim’s Take: Put 80% of your money in safe investments like CDs and TIPS and 20% of your money into high-risk, high-reward investments. The low-risk side protects most of your money from Black Swans (similar to Perfect Storms). The high-risk side exposes you to those that might pay off. Finally he suggests staying out of debt, “The more debt you have, the more precise you have to be about your future income.”
Lazy Man’s Response: I don’t like this advice. The high-risk portion will likely balance out as some investments will do well and others will fail. The 80% will just stay ahead of inflation as Taleb points out. This plan isn’t likely to help you grow your money much, which isn’t very exciting.
Final Grade: B- (The final advice to avoid debt, despite being simplistic saves this from being a worse grade)
- Raghuram Rajan (Economist at the University of Chicago Booth School of Business; predicted the current financial crisis)
Raghuram’s Take: There’s a growing gap between the haves and the have-nots. Invest in your education. “Finding the best jobs might require moving around. Home prices may seem appealing these days, but beware: The economics of home ownership can lock you in place for years.”
Lazy Man’s Response: This is sound advice. The only fault I can find with it is that there he doesn’t provide any information on where to invest your money.
Final Grade: B+
- Simon Johnson (His book, 13 Bankers, describes exactly how a cabal of big banks gambled with our money, wrecked the economy, and then accepted huge taxpayer bailouts, all the while paying out gigantic bonuses and fighting financial reform. )
Simon’s Take: Get your money out of the big banks and support smaller banks and credit unions.
Lazy Man’s Response: I like this a lot. I’m doing more and more of my banking with USAA instead of Bank of America. For me, it’s the perfect combination between a credit union and a big bank.
Final Grade: B+ (This is fine advice, but it’s going to have a limited impact to your finances)
Robert’s Take: Invest in gold and stable currencies like the Swiss franc, the Canadian dollar, and the Japanese yen via ETFs. He realizes this is high-risk: “The days of comfortable investing are over. You’re trying to make money in a crisis.” Also, he suggests, “If your focus is on protecting what you have, then you might want to keep most of your money in cash and eventually move into Treasury Inflation-Protected Securities (TIPS).” Since “luxury goods will suffer”, he suggests “aiming your career at businesses that produce basic necessities, like medical care, food, repair and maintenance, education, and utilities.”
Lazy Man’s Response: Regular readers know I have long been against gold for a variety of reasons. It’s the currency of the past, not of the future and it has little practical value (in comparison to its cost). It also is really expensive after the run up over the last few years. I really don’t see currency trading as a practical solution for most people. Not only is it risky, but the average person doesn’t understand it. I’ll give him some points for ways to protect your money, but moving to cash isn’t exactly rocket science and putting most of your money there isn’t going to help it grow. The final advice about business with basic necessities is a very good one. I love it.
Final Grade: B- (Almost entirely on the strength of the last piece of advice.)
I was very surprised by the lack of useful information provided by these experts. I’m reminded by the people who are giving the advice, Wall Street economist types. As Abraham Maslow said, “It is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail.”
Kosmo @ The Soap Boxers says
On the topic of gold … I discussed the issue with an acquaintance of mine who works as a metallurgical engineer. Some of his thoughts are here:
The game as we know it has totally changed and unfortunately most of the advice dispensed fails to fully account for this.
The vast majority of market prognosticators, PHD’d money-men, economic forecasters, and Wall Street wiz-kids use backward looking analysis to craft forward looking theories of how to invest, but the next twenty years will not look anything like last the last twenty.
Whether it is the “normalcy bias” (wherein participants assess the probability of an event based on whether relevant examples are cognitively “available”), the Pavlovian cyclically of thought, or the extraordinary delusions of group-think, very few people are willing consider the consequences 15+ trillion dollar gross national debt, over 70 + trillion in unfunded liabilities, and the subsequent inevitable (eventual) default.
Unfortunately, there are only two historical periods I believe are relevant in charting our path forward from here — the U.S. during the Great Depression and the Japanese experience over the last twenty years.
I just penned a piece on my site addressing this very issue.
What strikes me here is that religiously following the advice of any one or two so-called experts is a mistake. Investors need to diversify viewpoints on investing, for the same reasons they need to diversify investments. All eggs in one basket = disaster waiting to happen. Thanks.
Kosmo @ The Soap Boxers says
Also, don’t simply trust the messenger – look at the message. Sometimes smart people say really dumb things.
Value Indexer says
Everyone makes a big deal out of someone who got their clients out of stocks before 2008. That’s nice but it’s just one event. I know some people who congratulate themselves for putting their clients into segregated funds with guarantees managed by insurance companies. Yeah it worked for a couple of years, now let’s check back in 40 years and see who’s smiling (hint: ends with “–surance company”).
Although I love anyone who suggests buying heavily when everyone else is running away.