A Bit More Financial Advice

Following Harold Pollack’s fine series of discussions about money management with Helaine Olen, here is another useful tidbit, which I was happy to see that the FT put on the front page yesterday.

Reporters Dan McCrum and Arash Massoudi analyzed all the investment advice given out at one of those high-priced “meet the gurus” event. This one was called the Ira Sohn Investment conference and was held at Lincoln Center.

Crunch finding: If you acted on every tip of the top 12 speakers, you would have made less money in the stock market than did someone who simply put money into a vanilla passive index fund.

Author: Keith Humphreys

Keith Humphreys is the Esther Ting Memorial Professor of Psychiatry at Stanford University and an Honorary Professor of Psychiatry at Kings College Lonon. His research, teaching and writing have focused on addictive disorders, self-help organizations (e.g., breast cancer support groups, Alcoholics Anonymous), evaluation research methods, and public policy related to health care, mental illness, veterans, drugs, crime and correctional systems. Professor Humphreys' over 300 scholarly articles, monographs and books have been cited over ten thousand times by scientific colleagues. He is a regular contributor to Washington Post and has also written for the New York Times, Wall Street Journal, Washington Monthly, San Francisco Chronicle, The Guardian (UK), The Telegraph (UK), Times Higher Education (UK), Crossbow (UK) and other media outlets.

4 thoughts on “A Bit More Financial Advice”

  1. Was there some subset of the tips of the top 12 speakers which would have resulted in higher returns? (If so, Bayes says we shouldn’t listen to those people in the future.)

  2. Berkshire Hathaway has a terrific on-line resource–a compendium of Warren Buffett’s Shareholder Letters dating back to 1977. If you want some good investment advice, it might be sensible to stay away from the “events” and reread Buffett’s advice periodically.

    http://www.berkshirehathaway.com/letters/letters.html

    In the front of the newest (2012) letter there’s a table of year-by-year performance data for Berkshire Hathaway and S&P. Then, in the beginning of the text, there’s this interesting overview of an important difference:

    “When the partnership I ran took control of Berkshire in 1965, I could never have dreamed that a year in which we had a gain of $24.1 billion would be subpar, in terms of the comparison we present on the facing page. But subpar it was. For the ninth time in 48 years, Berkshire’s percentage increase in book value was less than the S&P’s percentage gain (a calculation that includes dividends as well as price appreciation). In eight of those nine years, it should be noted, the S&P had a gain of 15% or more. We do better when the wind is in our face.”

    So what Buffett is saying, and is borne out by the data, is that even though his long-term trend is higher than the S&P, a no-load index fund will do better in “bubble” times. And that, of course, is what all those “gurus” advertise.

    Ah, if only we knew in advance when bubbles are going to begin, and when they’re going to end…

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