All Kinds of Investment Advice

I had to laugh this morning as I watched CNBC and heard a diatribe from one of their talking heads about Amazon’s earnings and the brokerage firms covering this stock. They have a cute way of communicating their disdain for these firms, which always seems to be behind the reality of the stock’s situation.

For example, in the Amazon situation, the stock is up around 22 percent after announcing their profits more than tripled in the second quarter of the year. Whereas many of these brokerage firms had HOLD or SELL ratings on the stock, all of a sudden they’re touting its praises and saying, “Buy, buy, buy! What a great stock! You should own this stock! We love it! It’s going to $100!”

On CNBC, then, they delight in making fun of these firms with comments like, “I don’t know why you’d ever use a discount brokerage firm when you get advice like this from the full-service guys!” Talk about tongue in cheek!

And yet I know what they’re talking about. It’s easy to give advice to someone about anything after the fact. “I wouldn’t get on that dirigible, Hans!” “No, the Titanic cruise is not something you should do, Martha.” “Google? I told you to buy it when it was an IPO, but you wouldn’t listen to me!” It’s much more difficult to predict the future of a stock or a company based on your diligent and intelligent research you stick with no matter what because you believe in your work.

A few years ago, I heard a “hot” stock tip: “Buy X stock because it’s guaranteed — absolutely guaranteed(!) to go up 50 percent within the next year.” The sales pitch was persuasive; the advice seemed reliable. I bought X stock and waited to make my fortune. And I waited … and waited. Finally, having bought in at $18 per share, I sold at $9.00 per share. I had lost 50 percent of my investment, not made 50 percent. What happened? Why did I listen to this advice and why was it advice not to be listened to in the first place?

I listened — fortunately I can’t even remember who it was or the company — because this guy had the command of my airwaves. Somehow he was believable and credible enough to earn a spot on CNBC, probably the most intelligent, followed financial news channel in the world. If he was speaking to me — and all the other viewers — from a position of authority on CNBC, surely he was telling us something exciting and positive!

Lesson #1: Don’t believe someone or buy what they’re touting just because they’re on CNBC or Bloomberg Financial or Fox Financial programs. You don’t know how they get there or if the producers and staff of the show they’re on have done their homework and investigated this guy. Maybe he’s there just because he has a good agent or can sell anything, including himself as a speaker on the airwaves.

I listened because I got greedy. Making 50 percent on my investment seemed so wonderful and I couldn’t pass it up. He appealed to my baser instincts, to my greedy nature, and he won. “Greed,” says Gordon Gecko in the movie “Wall Street,” “is good.”

He’s wrong; greed is not good. As Jim Cramer says with such passion and repetitiveness: “Bulls make money, bears make money, but pigs get slaughtered.”

Lesson #2: Don’t get greedy, and don’t fall for advice in which greed plays a huge part. If this stock were so good, why was this guy letting all of us in on the secret? I should have asked this important question, but my greed and avarice got in the way. If someone has the stock tip of the century, why in the world would he or she want to share it with millions of viewers unless there was some reason why he or she would profit from this dissemination of information?

The answer is there is no reason at all unless you believe these people are benevolent and want to share their wealth producing stories with others just because they love mankind. (Yes, this is tongue in cheek also.)

So be careful when listening to advice, either from a brokerage firm or a private individual. Most of the time — I’m sorry to report this but it’s true — these entities are not out to make your fortune but their own. If by advising you to buy a stock they can profit, they will do so. They do not care about your welfare, your future, or your investment portfolio’s success.

They are not your friends. So don’t make them your advisers either.