Entertainment is not Wisdom

A few days ago I was asked for some recommendations on books to read by a person who was looking to learn a little more about the world of finance. Normally, that’s something that I can help with. I read a lot, and as it happens I was in the local bookstore just a few days earlier.

The problem is, I was at a bit of a loss to come up with anything particularly helpful for this lady. One book sprung to mind, but even that one didn’t really fit her particular situation.

It’s not that there aren’t good references out there. I just picked up the new Warren Buffett biography, which I am very much looking forward to, and I already own dozens of books on Buffett. I even have a book on the grocery store founded by Buffett’s great-grandfather in 1869, autographed by the author, Warren’s cousin. You might say I am a bit of a Buffett fanatic.

But there is also a lot of questionable material out there as well. Material that is, I think, more self-serving than informative. It seems to me that this latter category contains pretty much every book out there that proclaims a sure-fire path to wealth beyond your dreams, just by following their patented simple recipe.

Not all of these guys are selling snake-oil, mind you.  Books that tell you about paying off debt and dollar-cost averaging and legitimate ways to pay less tax are likely giving solid advice. It’s predominately the guys that claim to have some sort of “system”, or suggest that they can reveal some sort of mysterious secret, that seem to be more geared to selling you a book than to truly educating you about finances.

So why is so much questionable material out there? Very simple. A part of the population has an appetite for it. People will buy a book that claims to expose the secrets that the CRA doesn’t want you to know. People want to believe in shortcuts to success. People will listen to exaggerated claims and loud rants. Even if this kind of information is the financial equivalent of professional wrestling.

It brings to mind a book I picked up a few years ago from the dollar bin about “How To Profit From The Coming Y2K Crash.” Of course, there never was a Y2K crash, and in this case the author’s rationale was suspect, but back in the day there was an appetite for this kind of stuff, so it was published, and it was bought.

Unfortunately, having an appetite for this kind of information, and the media personalities that deliver it, doesn’t necessarily translate into anything beneficial. It’s kind of like when I eat potato chips for dinner. Sure, I have an appetite for potato chips, but I’m not doing myself any favours when I eat them as a meal.

Some of this questionable financial information ventures beyond self-serving, and into the realm of grandstanding. Like the well-known television personality who tries to make business news entertaining. He’s also got a book out. And some people lap this stuff up.

Of course, this is the same guy that was recommending Bear Stearns at $69 just a few weeks before it plummeted to $2. That’s not the first time he’s been horribly wrong either. In 2000, in the frenzy of the tech stock bubble, he was prominently recommending his ten “can’t miss” investments. I believe every one of his “can’t miss” recommendations blew up shortly thereafter.

But people still watch his show, and people will buy his book. They find him entertaining. But entertainment is not wisdom

What got me thinking about this week’s column is a rash of recent criticism about Warren Buffett. Being a big fan, I read what people write about Buffett. But also, being a Buffett fanatic, I can tell when people are just blowing smoke.

In October, Buffett wrote an opinion piece that ran in the New York Times entitled “Buy American, I Am.” Subsequent to its publication, the markets went down in the weeks that followed. This brought no end of delight to certain people, who believed that this entitled them to say, “See I told you so. Buffett has lost it. I was right all along.”

Here are some excerpts from what Buffett said in October: “The financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary. So … I’ve been buying American stocks.”

“Why? A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records five, 10 and 20 years from now.”

“Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.”

So now we have these self-proclaimed geniuses saying look how wrong Buffett is because the markets went down in the weeks following.

Gee whiz, did these guys even read the Buffett opinion piece? For decades, and again in this piece, Buffett has made it clear that he has no predictive abilities about short term stock price movements. Further, he doesn’t really care about short term volatility in the stock market, unless it gives him an opportunity that he can capitalize on. But that doesn’t stop Freddy McKeyboard from taking snippets of what Buffett says, often out of context, and twisting things to suit his own purposes.

When researching this column I came across a headline that read, “Bad Week for Warren Buffett,” which spoke of that particular week’s market action.  Give me a break. That’s just goofy. Seriously, who invests with an investment horizon of one week? Your annual vacation lasts longer.

I’ve got a very bright two-year old at home, and so when I was in the bookstore I also spent some time in the children’s aisle. Here’s a book recommendation; “Oh, The Places You’ll Go” by Dr. Seuss. I’m not joking. It’s far more insightful than some of the junk that’s peddled in the business section.

There is a word for these hyped-up, can’t-miss, you-need-to-know-this-now, act-today types of messages. They’re called infomercials.  Infomercials and wise, meaningful information are not the same thing. It behooves a person to know the difference.

This article was posted in All Columns, Money Management.
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