Bad advice

Many people are looking for help to manage their finances.

Many unsophisticated turn to financial advisers who seem to provide much-needed guidance, but too often that turns out to be a disaster.

There now is an industry classification, Chartered Financial Analysts, that is supposed to help with investment problems. To obtain the CFA designation, a course had to be taken with examination at the end of the program.

In no way however, does that qualify a person to be a successful investor. Judgement is required, and that cannot be learned by taking a course in securities investing.

The advice given frequently is worthless. If successful investing were only that simple, there would be a clear path to amassing wealth. By the time the applicant for the CFA course buys all the textbooks, attends all the lectures and takes the course, someone probably has gotten wealthy, but not the CFAs or their clients.

Investors have been tempted to buy complex financial products, yet simple investment made much more sense, for example even a one-product company such as Campbell’s Soup, rather than a more complicated one.

In order to take advantage of market volatility, some have invested in hedge funds. They purchased stocks that they were considered to be a good value, and short others that they believed to be overpriced, sometimes using borrowed funds, compounding their generally poor performance.

A multi-billion dollar hedge fund in the United States run by computer addicts went bankrupt, costing investors huge amounts of money and destabilized the bond market for weeks.

In order to capitalize on the apathy or lack of knowledge of the public, advisers begun recommending investments in foreign nations. Their regulation and lack of supervision compared to even our limited government controls, are so lax that investments there are extremely risky.

Furthermore, ethical standards too often are thoroughly corrupt; one could be placing funds in a truly unknown entity. Even university funds have followed that course, taking positions in Timberland and a Chinese retail chain.

Many advisory letters are available by subscription, and rating agencies have classified some companies as triple A that later went bankrupt. Only the authors of these letters or the rating agencies made any money over the long term.

History shows that financial gurus, more often than not, do not offer a recipe for success.

To be a successful investor requires a great deal of homework, an honest investment firm, a rising market and good luck. History confirms that repeatedly.


Bruce Whitestone