Don't Pay Any Mind to Financial News Gurus

Investor Marc Faber
Jonathan Fickies/Bloomberg via Getty ImagesMarc Faber, publisher of the Gloom, Boom & Doom Report, is a frequent CNBC guest.
By Daniel Solin

It has long been my view that much of what passes for "financial news" is little more than an infomercial for the securities industry. It also serves to feed the egos of self-confident pundits, who feed viewers a daily grist of musings that often include predictions about the direction of the markets, the possibility of inflation and whether interest rates are likely to rise or fall. When they are correct, which is likely around half of the time, these pundits are proclaimed gurus. When they are wrong, they have no remorse or accountability.

Some of their pronouncements are so silly you wonder how they get airtime. Art Cashin is a frequent contributor to CNBC. He recently observed that "caution is in the air." This came less than a month after his insight that the Standard & Poor's 500 index (^GPSC) could "taste 1,950 points." When Cashin isn't personalizing the collective mood of millions of investors all over the world, a formidable task you may think would be a full-time job, he works as director of floor operations at the New York Stock Exchange for UBS (UBS).

Cashin's musings aren't harmless. Presumably, some viewers believe he has a special insight into the market and that his views merit some consideration.

But the fiction that Cashin can predict the unpredictable pales in comparison to the harm done to investors by the single biggest myth perpetuated by the financial media: The market hates uncertainty. How many times have you heard that phrase?

As recently as June 12, Jim Cramer stated that "if the market hates anything, it's uncertainty." Cramer, concerned about the fighting in Iraq, recommended that, for now, investors sit on the sidelines.

When markets tank, even the mainstream press attributes the cause to "uncertainty." A headline on a Sept. 20 CNN Money story stated: "Dow down nearly 200 points as uncertainty returns."

The problem with following advice based on "uncertainty" is that it causes investors to act emotionally and get in or out of the market based on the views of financial pundits. In March of 2009, the level of uncertainty was very high. Things looked pretty dim. Investors were rocked by record losses. The financial stability of our banking system was very much in doubt. The Madoff scandal eroded confidence in the integrity of the financial markets.

If you had listened to the pundits and remained on the sidelines, you missed a huge and sustained rally. From March 2009 to May 2014, the Russell 2000 index was up 213.33 percent. Clearly, the market didn't "hate" this uncertainty.

Again, there is much uncertainty in the market. An active debate is underway about whether the current bull market is likely to continue or whether a crash is imminent. Wharton School Professor of Finance Jeremy Siegel recently said told CNBC he "would not be surprised" to see the Dow Jones Industrial Average climb to over 18,000 by year-end. Marc Faber, the editor and publisher of the Gloom, Boom & Doom Report, couldn't disagree more. In April, he said on CNBC, "I think it's very likely that we're seeing, in the next 12 months, an '87 type of crash. And I suspect it will be even worse."

Investors are caught in the middle of these two conflicting views. What are they supposed to do?

Here's an easy-to-implement resolution: Ignore the financial news and the musings of the pundits. Their predictions about the future of the market are no more reliable than yours. The best indication of the status of the market is the price set by millions of traders every day. If it were "obvious" to them that the market was about to crash, stock prices would decline.

If they thought the market was going to continue its bull run, prices would increase. You can assume the current price of stocks and bonds reflects all available information. And the prices you are looking at today reflect the collective judgment of investors worldwide. They are likely to be fair.

Instead of trying to figure out which pundit is right or wrong, focus on factors you can control, such as your asset allocation, costs, fees and tax efficiency. Your decision to buy or sell stocks or bonds, once you are comfortable with your asset allocation, should be part of a regular rebalancing strategy intended to be sure your portfolio isn't too risky or too conservative for your needs.

The fear mongering over market uncertainty is designed to embellish the credentials of those making predictions. It shouldn't be used as part of an intelligent, responsible investing strategy.

Dan Solin is the director of investor advocacy for the BAM Alliance and a wealth adviser with Buckingham. He is a New York Times best-selling author of the Smartest series of books. His latest book, "The Smartest Sales Book You'll Ever Read," has just been published.

7 Simple Strategies for a Frugal, Prosperous Life
See Gallery
Don't Pay Any Mind to Financial News Gurus

Securing a favorable interest rate is a prime way to maximize savings. On a major loan repayment like a mortgage, a little upfront effort can save you considerable amounts for years to come. To cash in on this frugal hack, you need to get your credit in shape. That means checking your credit history, making payments on time (and in full), and reducing your debt to available credit ratio as much as possible. It means paying down your balances on all your credit card accounts. The higher your credit score, the lower your interest payments and the higher your savings.

Adjust your withholding exemptions so that your payments to Uncle Sam match your actual tax liability, and you won't wind up with a big refund come April. As exciting as it is to get that big check in the mail, that's money you've been loaning to the government for free rather than having it grow in your own savings and investment accounts. As of the start of April this year, the average tax refund was $2,831. That's $235 a months' worth of money that could be working for you.

Just 10 to 20 minutes on the phone with your cable company, cell phone rep, or any other service provider can result in recurring monthly savings through old-fashioned negotiation. If you're not getting anywhere after asking for a lower rate, ask for the cancellation (or retention) department and see what offers start to come in. If you're unable to haggle down to get the savings you want, you can always shop providers to get your service elsewhere -- probably with a new-customer discount rate, too.

While bulk buying can sometimes lead to unnecessary purchases and overspending, it's a great strategy for savings on nonperishable items like paper products, cleaning supplies and alcohol. When you stock up, you save on the unit price and the trips to the store to restock.

Other than the obvious benefits of reduced health care costs over time, exercising and living a healthy, smoke-free lifestyle can provide some more immediate savings on your insurance premiums.

More stuff equals more to maintain, clean and devote time and energy to. From the size of your home to the size of your clothing collection, more "stuff" generates more expenses. Downsize and watch your savings soar.

For each year after full retirement age that you delay taking Social Security benefits, you accumulate a permanent increase in your benefits of 5 to 8 percent until age 70. This one strategy can increase your Social Security retirement income by more than 25 percent. It would take a lot of penny-pinching to add up to that kind of income boost.
Read Full Story
  • DJI26135.79249.780.96%
  • NIKKEI 22520563.16144.350.71%
    Hang Seng26291.84557.622.17%
  • USD (PER EUR)1.11-0.0015-0.13%
    USD (PER CHF)1.02-0.0037-0.36%
    JPY (PER USD)106.600.24000.23%
    GBP (PER USD)1.21-0.0016-0.13%