Your Favorite Investing Expert Is NOT Your Friend

Beyond Buy-and-Hold #73

By Rob Bennett

Your favorite investing expert is your favorite investing expert. Your favorite investing expert is not your friend.

It?s important that you make this distinction.

Say that a political figure aspires to the Presidency. What happens? Do we hand him the keys to the White House because he talks a nice game?

We do not. He is subjected to vetting. He is asked questions. Hard questions. His answers are not accepted on faith. They are checked. Contradictions are noted. Vagueness is faulted. We place demands on our Presidential aspirants.

That makes sense. You don?t want to let the wrong guy in the White House. Put the wrong fellow (or gal) in the job and you have a big mess on your hands.

Why don?t we do a similar investigation when it comes to investment advisors?

So it is with the person you put in charge of informing your investing strategies. All of your hopes and dreams for the future are dependent on your ability to make good investing calls. Allow emotion to influence your judgment, and you can blow the entire deal. You do not want to do that. If you start thinking of your favorite investing expert as your friend, you are letting emotion enter a place where it does not belong.

There is no one person who knows all the answers either in the political field?or in the investing field. If you want to hear good stuff about President Obama, you can find lots of articles making a case for him. If you want to hear bad stuff about President Obama, you can find lots of articles making a case against him. Can that be said about your favorite investing advisor?

Magazines do not often run critical articles about investing experts. The deal seems to be that those who follow an expert only want to hear positive words while those who do not follow that expert don?t care to read about him at all. So why write critical articles?

Before locking in with an investment advisor, first read the criticisms against him

The people who follow an investing expert should be excited to see articles making a case against the fellow?s advice. There are three reasons:

  1. The guy might really be bad news and you want to find out as soon as possible if that is so,
  2. The guy?s approach might stand up well to criticism and you will gain confidence in the guy?s approach to see it tested and to see it pass the test,
  3. The guy is going to get lazy if he is not often challenged in public.

All investing experts can improve. Not too many are likely to improve if we do not make demands on them.

You need to be making demands on your favorite investing expert. Does he really know what he is talking about? Does his advice work in all types of markets or only in some? Is he the type to tell you only what he thinks you want to hear and does he therefore tend not to report to you the downside of the strategies he recommends? Are his views consistent? Or does he cover up holes in his arguments with word games that sound good until the day they leave you busted?

Your investment advisor is NOT your friend

We don?t make demands on our friends. So we need to be careful not to come to like our investing advisors too much. We can make friends at work or around the neighborhood or while having coffee after Sunday services. It?s dangerous to start thinking of your favorite investing expert as your friend. You don?t want to go there.

How many of those who invested in the Madoff fund didn?t listen to the voice within warning them that something wasn?t right because Madoff seemed like such a nice man? Con men always seem like nice men until the con reveals itself. There has never been an effective con man who wasn?t friendly. It might be a bad sign if your favorite investing expert is super warm and super funny and super likable.

I?m serious.

One of the most important jobs of a good investing expert is to tell you when you are full of it. That?s hard work. People don?t like being called out on their nonsense. The investing expert who pops your fantasy balloons risks losing you as a client. That takes guts.

That?s when the guy really earns his money. The good ones are the ones who care enough about your financial success to risk losing the business rather than to let you risk losing your life savings. A good investing expert is a professional. That means he tells you the way it is, not the way you want it to be.

A bad investing expert will be your best friend in the world. He will send you a Get Well Soon card when your financial plan crashes. He might even tell you a good joke every now and again. No charge!

The Bottom Line

There?s money involved in this game. You need to summon up a measure of seriousness if you are to avoid getting crushed. You need a man (whether it happens to be a man or a woman playing the role). Do you know why many investing experts direct most of their energies to becoming their clients? best friends? They don?t see themselves as investing professionals. They see themselves as salesmen.

People are being taken every day. And the saddest part of it is that it is people who they think of as friends who are doing it to them. You know there?s something wrong going on when you are paying money to someone to be your friend. A true investing expert has a job to do that cannot be accomplished if he gets too caught up in an effort to get you to like him.

Rob Bennett warns middle class investors of the tricks employed by The Stock Selling Industry. His bio is here.


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Risk-Free Stock Investing?
Get Rich Quick ? What is it?

( Photo from Flickr by Helico )

2 Responses to Your Favorite Investing Expert Is NOT Your Friend

  1. Hi Rob–I think you’ve hit on something substantial by identifying the traits that could cause us to see an investment expert in a more positive light than we should.

    This stuff–“A bad investing expert will be your best friend in the world. He will send you a Get Well Soon card when your financial plan crashes. He might even tell you a good joke every now and again.”–is straight out of SALES 101!

    It’s what every salesman is taught to do. It has NOTHING to do with investment advice.

    An objective investment expert is never wedded to his pronouncements, as if he can talk them into existence. He’s a realist who knows the market pendulum swings both ways, and he’s ready to be objective and call it as it is, not as he might will it to be.

    You really have to look at how many times an expert calls a reversal, or advises his clients to get out of certain positions or even out of the market entirely.

    If he rarely or never does this, he isn’t an expert–he’s a salesman! Making money FROM you is more important to him than making money FOR you.

  2. Thanks, Kevin.

    It’s hard to overestimate how big a problem this is.

    It’s not just that the salesmen (90 percent of all investing “experts”) give bad advice. It’s that the salesmen see a threat to their marketing efforts if anyone else gives good, research-suported advice. So there are intense pressures imposed on those doing the job the way it should be done to become salesmen themselves.

    We would be better off if there were not one investing expert available to us. Why? If there were no “experts,” we would be forced to rely on our common sense to figure out how to invest. Allowing common sense to influence you would give you results 10 times better than what you get from listening to the big-name experts who are focused on making the sale rather than on helping the investor.

    What a mess!


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