Stupid pet tricks are fun to watch.  Stupid financial media tricks may be entertaining, but they have the potential to cause real harm.

I plucked these gems at random from the financial media on October 29, 2018.

Goldman Sachs predicts “a market rebound.”

Goldman Sachs has no greater ability to predict a market rebound (or a major correction) than anyone else, including your dog.  If you asked your dog to bark once if the market will rebound, or twice if it will tank, your chance of being correct would be about the same as relying on any market “guru.”

If it was really possible to predict the direction of the market, more people would be able to do it successfully.  Those “experts” would then publish their past predictions so we could validate their predictive powers.

When disinterested third parties do this calculation, the results are dismal.

Cramer: A weakened Angela Merkel is a “rocket fuel” for European markets.

Cramer’s predictive skills are generally worse than the “proverbial flip of the coin.”   The results of a study discussed here) of “gurus” placed him 39th out of 68 experts.

If you are tempted to rely on Cramer’s musings, substitute a coin flip instead.  It will improve your odds.

The S&P 500 “is sitting right on the trend line.”

I’m not sure where I read this:  I don’t know any rich chartists.

The idea that you can predict the direction of the market through “technical analysis” is highly suspect.

Here’s the view of Burton Malkiel, author of the seminal book, A Random Walk Down Wall Street:

Thus, neither technical analysis, which is the study of past stock prices in an attempt to predict future prices, nor even fundamental analysis, which is the analysis of financial information such as company earnings, asset values, etc., to help investors select “undervalued” stocks, would enable an investor to achieve returns greater than those that could be obtained by holding a randomly selected portfolio of individual stocks with comparable risk.

I agree.

Wall Street’s “Dean of Valuation” Likes These Tech Stocks Best Now.

There’s so much wrong with this headline, it’s difficult to know where to start.

Just because someone is anointed “Dean of [fill in the blank], doesn’t mean its true or that you should rely on their purported expertise.

As a general rule, investors should avoid individual stocks.  The expected return of any stock is the same as the index to which it belongs, but with significantly more risk.  You could get lucky and pick the next “winner”, but the odds against doing so are so small it makes no sense to try.

Assume you follow the advice of this “Dean of Valuation” and place an order for the recommended tech stocks.  Here’s what your broker won’t report back to you:  Everyone agrees with the “Dean”, so there are no sellers.

When you buy a stock (often because you think it’s undervalued), someone else is selling (often because they think it’s overvalued).

Why are you so confident you’re right and they’re wrong?

These examples of “stupid media tricks” illustrate why much of the information in the financial media is harmful to your financial well being.

Ignore it.

Resource of the week

This blog post should dissuade you from buying individual stocks.