Bad Investment Advice
I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.
— Warren Buffett
The collapse of celebrity endorsed investments such as cryptocurrencies and NFTs has lost many people money:
In the midst of the ongoing rout in high-growth investments, these influencers’ silence on the matter is particularly jarring — especially for their fans who lapped up and followed everything they said.
A google search on investment advice brings up around 721 million results. Sifting through what is relevant to you, your life, and your situation is extremely hard. The media tends to latch onto quotable quotes and what famous people say, which means that bad investment advice by celebrities and billionaires have been around for a long time; from Tom Selleck selling reverse mortgages to sports stars jumping onto the SPAC bandwagon to Whoopi Goldberg fronting a very early version of a virtual currency which collapsed due to fraud.
Research shows that using famous people for marketing campaigns works wonders. The prices of stocks, sales and people’s attitudes to brands changes when they see someone they recognise selling a product. You could argue that these actors or sports stars had no investing background or knowledge and they probably made a mistake (but were paid to do it). However, professional money managers and even CEOs of large financial institutions have been proven to be wrong many times in the past as well.
This interesting study by J.P Morgan showed what your investment portfolio would look like if you had listened to famous market calls by investment managers, strategists and billionaires over the past 10 years. Even recent times such as the COVID-19 sell-off when the media was touting that it was a “stock picker’s market”, their advice did not help to generate wealth for investors who followed them. A list of what they had said is shown below.
A vast majority of their comments sound logical and makes you want to act in order to preserve your investments as the possibility of a terrible outcome appeared very real. However, if you measured whether acting on their comments would have brought you and your money any benefits, the answer is no.
The chart above shows what would have happened if you moved out of equities into bonds (for safety) at the time of the comment. If you did so, you would have underperformed by approximately -30% to -65%.
So why is everyone giving bad advice? Are they just ignorant, don’t have any economic or investment knowledge, or they’re trying to pull a fast one on you? If someone says “buy this stock” or “hold cash now” or “it’s time for bonds” always remember - their advice has no context. They have no idea who are you. They don’t know whether you are retiring next year or are 25 years old and have years of accumulation ahead of you. They don’t know whether you have $10M in fixed deposits or $100K in the Singapore stock market. They don’t know whether you are a swinging single or have a family to feed and take care of. Their comments are based on their opinions, feelings, personal perspectives and circumstances. It is certainly not made with YOU in mind.
In times like these, it helps to have someone guiding you through the turmoil - so here are some suggestions:
If you are investing for long-term goals and already have a plan with long-term returns expectations, stick to it. Such plans have already accounted for the probability of market corrections along the way.
Markets go up majority of the time. Time spent worrying about crashes is time spent worrying about something that doesn't happen very often.
Consult a fiduciary adviser for behavioural coaching in times of market turmoil so as to avoid making financially destructive decisions. Many studies have been done to show how a good advisor not only adds to your long-term returns, but also a perspective to how every market situation relates to your goals.
If you are looking for better investment advice or just want to check-in on what is happening with markets recently, come and have a chat with us.
