Skip to main content

Sound Advice: March 9, 2022

Information?

There is no shortage of useless information about investing provided by the media, both broadcast and print.  On a nonstop basis, the public is bombarded by recommendations for the best stocks or funds to buy, an endless list of reasons why the markets are going up or down, and opportunities to take advantage of the latest approaches using artificial intelligence and other mysterious black box strategies for making fortunes.  And I suppose there are still some folks who would be willing to sell you the Brooklyn Bridge.

This valueless stream comes from popular outlets as well as supposedly esteemed professionals.  In a recent article, Jeff Sommer of The New York Times focused on the gyrations of the investment markets and the commentary from well-known Wall Streeters about the events in Ukraine.

Here’s an excerpt from a recent interview between Mr. Sommer and Eugene Fama, the University of Chicago economist who is widely known as the father of the efficient-markets theory.

Mr. Sommer asked whether Mr. Fama had been reading the analyses of Wall Street houses like Goldman Sachs or Morgan Stanley, or of those by independent market researchers.  He noted that they don’t predict how the war in Ukraine will end, but observed that they often recommend strategies for coping with tumultuous markets in what may be the start of a new Cold War and is certainly an era of high inflation, severed supply chains, and extreme volatility.

“No, he (Fama) said. “I don’t read any of it.  It’s investment porn,” he said.

I (Sommer) was taken aback. “That’s a little harsh, isn’t it?”

Fama: “Maybe.  But that stuff isn’t based on deep research. What do they really know?”

That sums it up.  Although fundamental research properly performed is of significant value when taking a long-term perspective, changes in investor psychology will always dominate in the short term.

Volatility is all about emotional responses, which periodically cloud the rational, long-term view. 

N. Russell Wayne, CFP®

Sound Asset Management Inc.

Weston, CT  06883

203-222-9370

www.soundasset.com

www.soundasset.blogspot.com

Any questions?  Please contact me at nrwayne@soundasset.com

Comments

Post a Comment

Popular posts from this blog

Sound Advice: July 16, 2025

Fixed annuities are poor investments Fixed annuities are often criticized as poor investments for several reasons, despite their reputation for providing stable, predictable income.  Here are the key drawbacks and concerns:   High Fees and Commissions Internal Fees:  Fixed annuities can carry a range of fees, including administrative charges, mortality expense risk fees, and rider fees. These can add up to 2%–4% per year, significantly eroding returns over time. Commissions:  Sales agents and financial advisors often receive high commissions for selling annuities—sometimes as much as 5%–8% of the invested amount. This creates a financial incentive for advisers to recommend them, even when they may not be the best fit for the client. Comparison to Other Investments:  Mutual funds and ETFs typically have much lower fees and commissions, making them more cost-effective for long-term growth. Limited Growth a...
Post a Comment
Read more

Sound Advice: October 8, 2025

How many investors have outperformed the stock market over the last 20 years? Very few investors have outperformed the stock market over the past 20 years.   Data shows that only about 6% to 8% of actively managed equity funds in the U.S. beat the market over this period, with the vast majority—over 90%—underperforming the S&P 500 or equivalent broad indexes. Percentage of Investors Beating the Market Only 8% of equity funds investing in large companies managed to outperform the market over a recent 20-year span. About 94% of all domestic funds underperformed the S&P 1500 Composite Index from 2005-2024. Over shorter timeframes (5-10 years), typically fewer than 15-20% of fund managers beat the S&P 500, and performance persistence is rare. Why It Is Rare The S&P 500’s high returns have proven immensely difficult to beat, especially as indexing has become popular and markets have ...
Post a Comment
Read more

Sound Advice: January 15, 2025

Why investors shouldn't pay attention to Wall Street forecasts   Investors shouldn't pay attention to Wall Street forecasts for several compelling reasons: Poor accuracy Wall Street forecasts have a terrible track record of accuracy. Studies show that their predictions are often no better than random chance, with accuracy rates as low as 47%   Some prominent analysts even perform worse, with accuracy ratings as low as 35% Consistent overestimation Analysts consistently overestimate earnings growth, predicting 10-12%                 annual growth when the reality is closer to 6%.   This overoptimism can                 lead investors to make overly aggressive bets in the market. Inability to predict unpredictable events The stock market is influenced by numerous unpredictable factors, including geopolitical events, technological changes, and company-specific news.   Anal...
Post a Comment
Read more