Sunday, June 30, 2013

Forbes Magazine - Following Its Advice Is Financial Suicide

I normally don't write magazine reviews, but I cannot remain a bystander. I have subscribed to the Forbes for a year and did not renew my subscription. There is a reason for this.

About the Magazine
Forbes magazine is a financial publication that aims to provide information and help one with financial matters. There are is wide variety of topics covered: retirement planning, stock and mutual fund picking, general financial advice and more.

What I Enjoyed

The magazine has relatively comprehensive coverage and publishes articles from "experts" with varying viewpoints.

Some of the "experts" actually provided good advice (e.g. Gary Shilling), but they were vastly outnumbered by "experts" who probably don't understand basic math.

What Is Not So Good
The coverage is not objective and the "experts" provide generally horrible advice. The viewpoint of the publication is most likely formed by Steve Forbes. Its general viewpoint is that of a perma-bull, which is helpful only until it isn't. The general mantra is "buy-buy-buy". You know, it is like real estate industry tells everybody that "now is the good time to buy real estate", always. The same applies to this magazine. Various experts tell you "now is the good time to buy stocks". Always.

Here is an example: one of the constant contributors (Lisa W. Hess) recommended buying Freddy Mac and Fannie Mae repeatedly, over a course of months as their stocks were going down from $29 and $35 respectively to $4 and $5 to about a dollar. Every time she acknowledged that she was "too early" making a "buy" call, but now is certainly the time. Reading her articles made me cringe. I feel very bad for her clients (she is some kind of investment advisor) and the readers who actually followed her advice and bought the stocks that are both now close to 60 cents.

Various other "experts" recommended buying a bunch of other stocks as the economy was going down more and more. They all claimed that there was going to be a rebound very soon and then those stocks would skyrocket. The stocks they recommended were only going further down. So how is this supposed to work - are they going to recommend you buy this or that stock, then reiterate their "buy" recommendation throughout the stock's fall, until the stocks actually starts going up a little and then they will feel vindicated? Let's recall that even a broken clock shows correct time twice a day.

Then, there is a section where about three stocks are quickly analyzed and recommended to either be bought or sold short.

In general, people who need advice about what stocks to buy or short, especially from a magazine (without looking at a stock's balance sheet, earnings, debt, etc.) have no business buying and selling stocks, lest they like to gamble with their money. This is not investing, this is what's called speculation. I read a research where performance of the list of professionally-picked stocks was compared to a random selection of stocks. The randomly-selected stocks did better overall. And those professional stock pickers were better than those clowns at Forbes, at least they had good track records.

Buying individual stocks works under two conditions:
1. You know how to do fundamental research and actually do it (provided the company provides objective information, which is something Steve Forbes apparently dislikes - see below).
2. You get lucky or you buy almost anything is a strong bull market or short almost anything in a strong bear market.

Otherwise, good mutual funds are a better approach.

Steve Forbes himself wrote many an article about how mark-to-market rules ought to be suspended. You know, they don't reflect true value, et cetera. Sure, let's follow the example of Japan and pretend for decades that underwater mortgages are worth close to their original value. God forbid investors who consider buying bank stocks discover that those banks are actually insolvent.

Pros: Good articles on topics that don't provide advice on picking stocks or general economy.
Cons: Repeated horrible "advice" from "experts" that don't understand basic math, agenda-driven content.

Bottom Line

Forbes magazine is a good source of information on a few topics. Some articles provide a balanced point of view. But the "advice" that "experts" provide on its pages can be financial suicide. Consider yourself warned.


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