Friday, January 7, 2011

Best and Worst Investing Awards for 2010

By Dan Solin

We are coming to the end of 2010, which has been a very interesting year for investors. I thought this would be a good time to hand out the Best and Worst Investing Awards for 2010. I hope you will find them helpful as you formulate your investing strategy for next year and thereafter:

1. The best prediction : To Newsweek Magazine. It predicted the possibility the Dow would hit 12,000, which is close enough.

2. The worst prediction : This was a tough one because there were so many contenders. I give the nod to Mohamed El-Erian, who predicted stocks would tank in January, 2010. Dr. El-Erian has credibility as chief executive of Pimco, overseeing over $1 trillion in assets. Hard to believe his predictions have no more merit than those of an astrologer.

3. Best TV media for sound investment advice: CNN because it does the best job of providing reliable information without encouraging bad investor behavior. It’s sad there isn’t a single program on TV that tells investors how to invest intelligently. I am working hard to change that.

4. Worst TV media for sound investment advice: CNBC is the hands down winner. An entire network devoted to instilling fear and uncertainty and encouraging stock picking, market timing and fund manager picking. The network is a shill for the securities industry. Its viewers are the hapless victims of its programming.

5. Investors’ Best Friend: Irving Picard, the court-appointed trustee assigned to recover assets from victims of the Madoff Ponzi scheme. His tireless efforts have recovered almost one-third of the $20 billion in losses, and he is hot on the trail of the balance.

6. Investors’ Worst Enemy: The feeder funds, banks and other institutions who ignored the obvious red flags indicating Madoff was a fraud and accepted hundreds of millions of dollars in kickbacks for investing their clients money with him. While some have done the right thing and made their investors whole (the Bank of Kuwait is a laudable example), many others have lawyered up and are engaged in a scorched earth defense of their indefensible conduct.

7. Best source for intelligent investment advice: The hands-down winner is the Fama/French forum where noted economists Eugene Fama and Kenneth French dispense investing wisdom, in an easy-to-understand format. Essential viewing for all investors.

8. Worst source for intelligent investment advice: Jim Cramer’s Mad Money, where Cramer fools investors nightly into believing he has some special insight into the direction of the markets and the ability to pick stock winners, although there is precious little evidence he (or anyone else) has this expertise.

9. Best Financial Product: Exchange Traded Funds which, when used correctly, can permit investors to invest intelligently, at low cost. Unfortunately, they are more often misused to pick sectors and trade frequently, which reduces returns.

10. Worst Financial Product: Another tough one. Hedge funds, variable annuities, equity-index annuities and private equity funds all qualify. However, the award goes to Principal Protected Notes. Their name got them the nod. The principal is not protected against issuer default. They have excessive fees and the upside is grossly overstated. Their complexity makes it very difficult for investors to understand how they are being ripped off and why much simpler alternatives would be superior investments. This combination of qualities typifies the conduct of many brokers and other “investment professionals”, and earned this product the award, but it was very close.

11. Most intelligent investing phrase: “It’s not different this time.” Because it wasn’t.

12. Dumbest investing phrase: A tie between the “new normal” and “buy and hold are dead.” There is no “new normal” and those who bought and held came through the crash and subsequent recovery with flying colors.

14. (I know it should be 13, but I’m superstitious). Most appreciative author/blogger: This was an easy one. Me. I get a tremendous amount of fan mail from readers of my books and my blogs (Okay, there is the occasional hate mail from a disgruntled broker). My books had stellar sales in 2010. It’s particularly encouraging to hear that many of you give my books to your children so they won’t make the same mistakes you did. I can’t answer everyone who contacts me and tells me how my advice has impacted them, but I do read every e-mail. I deeply appreciate your encouragement and support. I view it as a privilege to be able to dispense sound investing advice to such a wide audience.

To all of you and your families, I wish you a prosperous New Year!

Solin, Danielle. "Best and Worst Investing Awards for 2011." Index Funds Advisors Blog. Word Press, 12/09/2010. Web. 7 Jan 2011.

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