In our polarized political landscape, the term “dog whistle” is used to describe an innocuous sounding term that has a more insidious intent.
Dog whistles are rarely discussed when used by the financial media, but they are equally pervasive there.
Here are some prime examples:
Legendary stock picker
This term is bestowed by the financial media on someone who has made a particularly good stock call or a series of them. The implication is that this person has some special insight into selecting mispriced stocks.
The reality is that “legendary stock pickers” rarely publish their track records. There’s no credible evidence anyone has the expertise to consistently and reliably select mispriced stocks.
The dog whistle is this: Listen to this person. Rely on their recommendations. Call your broker and buy or sell the stock. The goal is to generate more commissions for advertisers.
This is a title given to anyone a brokerage firm deems worthy. It doesn’t require demonstrating any particular expertise or education. It furthers the goal of brokerage firms, which is to imply they employ people with special insight into the direction of the market.
The dog whistle here is the same as with “legendary stock picker.” They want you to rely on the “market strategist.” They hope you won’t check their track record.
Hedge funds are buying…
Recommendations based on what hedge funds are buying are often featured in the financial media. By referencing hedge funds, the financial media implies that those running these funds have expertise in stock picking that individual investors lack.
What the media fails to disclose is the dismal track record of hedge funds. It’s so bad you might be better off shorting any stock hedge funds are buying. As respected financial journalist Barry Ritholtz recently observed, Unless you are fortunate enough to be in the top 5 percent of alpha generators — those who deliver market-beating performance — almost all investors are still better off with simple low-cost funds.
The dog whistle here fits a familiar pattern. By invoking “hedge fund”, the financial media wants you to believe you should follow their lead, and buy whatever they are buying, thereby taking action that enhances their coffers and likely reduces your returns.
There are many other “dog whistle” phrases used by the financial media. They include “billionaire,” references to “technical analysis,” “consultants,” and “pension and endowments.”
Candidly, they’ll use anything to persuade you there’s a guru, system or entity that can pick stocks, time the market or select outperforming actively managed mutual funds. If you fall for it, maybe you’ll be convinced to abandon buying and holding a globally diversified portfolio of low-management-fee index funds.
I’m fond of saying “wealth management” often refers to the process used by the securities industry to “manage” to transfer your wealth into its pocket.
Don’t fall for it. Ignore the dog whistle.
Resource of the week
This article summarizes studies showing the dismal performance of consultants to institutional investors. Do you think your broker is more skilled than the investment consulting industry, which manages about $38 trillion in assets?