Broken Clocks Are Still Right Twice A Day

Posted in: Economics, General, Stock Market, Thought of the Week

The financial crisis not only caused those who sold into the panic to lose a painful chunk of their nest egg, it also gave rise to a new breed of financial predator that targets risk averse investors.

These are the market pundits referred to as “fear mongers,” because their goal is to manipulate the emotions of those who have lost big in years past for the sole purpose of making money.

This cohort shockingly is allowed to roam Wall Street, preying on those investors who need the most help, free from any regulation by our government. Their actions are truly deplorable, and I try to dedicate time each week to disproving and discrediting many of the stories that threaten the sanity of my investors.

Fortunately, there are others who have also taken it upon themselves to expose these con artists. Michael Johnston, of Poseidon Financial, wrote an outstanding article last week that brutally attacked this gang of financial thugs. The data in his report was so compelling that I have summarized it below (the link to the full article is at the end).

To start, let’s highlight just a few of the better known fear mongers and their track record since the financial crisis:

  • Marc Faber: The author of the widely read Gloom, Boom, and Doom Report collects $300 annually from each subscriber, while touting stories of market crashes and other financial mayhem. He became famous by getting clients out of the market before the 1987 crash, but really all he ever does is say the market will crash, so it’s tough to conclude if he has real insight or if it’s just statistically impossible to be wrong all the time. For example, he also predicted a 100% chance of a recession in 2012/13 (didn’t happen) and a market crash in 2014 (S&P 500 was up almost 14%).
  • Robert Prechter: This guy pretty much predicted the end of the world back in 2010, built around a target on the Dow at 1,000. His theory was based on a stock chart pattern that lead him to believe that we were headed for the biggest stock decline in 300 years.
  • Paul Farrell: Aside from countless bear calls that have all been wrong, he strongly recommends buying stocks based on the positioning of stars in the sky. He even wrote a book called Think Astrology and Grow Rich, which is riddled with advice predicated upon the positioning of Neptune and other terrestrial objects.
  • Harry Dent: Mr. Dent became famous by predicting the credit market collapse in 2008, but the problem is that he’s remained bearish since. In fact, in 2011, he predicted the Dow would head to 3,000 (it didn’t). Then in 2013, he mustered the courage to go out there and called another crash (the S&P 500 surged over 31% that year). This perma-bear charges for a series of newsletter, and a lifetime subscription will run you $7,500.

NOTE: These are just a few of the pundits out there preying on the emotions of investors. The sad reality is that there are thousands of these predators lurking across Wall Street because fear sells.

Brett Arends is a columnist for MarketWatch, which is a popular financial news website, and he wrote the following in a recent post:

Three simple rules will explain 99% of human behavior. 1: Most people don’t think. 2: Some people are just jerks. 3: Everyone is selling something.”

Rarely do I come across something so simple yet so powerful (particularly the third point). Since these fear mongers rarely manage any real amount of money, they have chosen to get rich by getting people to sign up for their newsletter, buy their book, and pay for whatever other garbage they are trying to sell to those who actually need real financial advice.

Now, I am the first to admit that there are times when the bears are correct and when prudence is warranted in an investment strategy. Recessions happen, stocks lose investors’ money, and economies collapse under too much debt.

But they don’t happen that often, and those who predict the end of the world carry no weight with me unless they can show me a time in the past where they made a bullish call and was ultimately correct. Only then can I consider them to be impartial.

What makes matters worse is that eventually one of these clowns will be right. The market will drop for some reason, and he/she will take their requisite “victory lap” around the media circuit to tell you why their system worked once again (even if the market decline occurred for reasons exogenous to their thesis). As the saying goes, “A broken clock is right twice a day.”

The bottom line is that fear mongers are emotional predators that have only one thing in mind, and that is to grow the size of their wallet. The world does not end all that often, so my best advice is to simply ignore the perma-bears and focus more on those who (1) manage money for a living, and (2) exhibit objectivity in their market predictions.

NOTE: The source of data and the table above, along with additional commentary that is worth reading, can be found here:

Read this week’s Thought of the Week to learn more about the fear mongers of wall street.

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As an Investment Advisory Representative working in conjunction with Global Financial Private Capital (GFPC) we are provided weekly thoughts on what is happening in the economy and the market. Written by our investment committee at GFPC we find these thoughts to be informative and interesting.