Passing the Hat for Jon Stewart’s Mother

14 March 2009 at 2:53 pm dgerard 4 comments

| David Gerard |

No doubt you have all seen or at least heard of the bloodletting of CNBC’s Jim Cramer at the hands of Jon Stewart. Stewart took Cramer to task for the financial “journalists'” role as cheerleaders rather than as investigative reporters leading up to the financial meltdown.

What seems to be lost in the discussion is the fate of Mr. Stewart’s poor mother.

Mr. Stewart: My mother is 75. And she bought into the idea that long-term investing is the way to go. And guess what?

Mr. Cramer: It didn’t work.

Although I think it is a bit premature to malign the viability of equities and long term investing, I found it even more distressing was that Mr. Stewart’s mother doesn’t seem to have access to any competent financial advice. I would hope that the host of a popular television show would have sufficient financial resources to hook his mother up with a financial planner. Or, she might have stayed in-house and asked her son who is the “head of U.S. Markets and Global Technology at NYSE Euronext.”

Well, I am willing to help out by imparting a bit of my investment knowledge (actually, all my investment knowledge) that I picked up in graduate school to the cause.

(1) It’s tough to beat the market. Most funds don’t beat a simple index fund, so buy a simple index fund.

(2) Stocks tend to be more volatile than bonds. There is a bigger upside, yes, but there is also a bigger potential downside. As you hit your golden years, consider rebalancing to reduce your portfolio risk.

If you have any further questions, please consult the comments.

Entry filed under: Bailout / Financial Crisis, Former Guest Bloggers.

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4 Comments Add your own

1. JK | 15 March 2009 at 8:57 am

Interesting point about Stewart’s brother, who also automated trading for Schwab in a previous job. A quick perusal of the ratings on the Daily Show reveals one of the best airings for Stewart on that evening, although it looks as if he has some work to do if he ever wants to catch up with Two and a Half Men.
2. Warren Miller | 16 March 2009 at 12:05 am

Thank you, David, for a great post. As one whose work takes him into frequent contact with MPT and money managers, let me offer up an observation or two, none of which s/b construed as “investment advice.” I’m not licensed to offer that, and nothing I say here s/b interpreted that way.

First, I agree w/you that low-overhead investments in diversified securities are the way to go for almost all Americans. That is because (a) over 80% of all money managers (out there ‘seeking alpha’ [excess returns]) UNDERperform the averages, and (b) institutions and big players so dominate the trading on any given day that small players don’t have much of a chance. That’s not conspiracy theory. That’s just what happens when those w/limited resources try to compete w/those who have enormous stashes of resources and investment talent.

Second, however, I think that your recommendation to “buy a simple index fund” is a bit, well, simple, if you’ll forgive me, please. For one thing, there is a difference between MUTUAL funds and EXCHANGE-TRADED funds (ETFs). ETFs have less overhead, are more liquid, are more tax-efficient, and can offer diversification at a price that few mutual funds can match. Even when they say they can, however, be careful about the timeframes required to be an “A”, “B”, or “C” investor in the fund you’re considering. Above all, DON’T rely exclusively on a broker. They’re sales people. A fee-only financial planner (as opposed to those who make their money on commissions for recommending products that might not be the best for your portfolio, but are for their bank accounts) is a good investment for most folks.

The most prominent financial-planning designations are CFA (chartered financial analyst, from the CFA Institute [www.cfainstitute.org – but not all holders of the CFA designation are financial planners, so be sure to inquire) and the CFP (certified financial planner, from the Certified Financial Planner Board of Standards [http://www.cfp.net]). Of these two, the CFA charter is much the more difficult to obtain, as witness the fact that only 1 in 5 candidates actually completes the demanding three-test regimen.

Third, don’t overlook ETFs which have an international focus, those that have an emerging-markets focus, and those that are good performers in fixed-income securities. A well-diversified investor will need five or six such investments, the mix of which will vary with the investor’s age, risk tolerance, investment objectives, liquidity needs, and tax status. I’m told that it is less expensive to rebalance a portfolio of ETFs than it is for almost every kind combination of investments.

Thanks again, David.
3. tom brakke | 16 March 2009 at 8:53 am

There are a lot of problems in trying to reach the famous nine percent (or whatever the number may be), although you wouldn’t know that from how investment products have been sold.

Chief among them is that we have a finite time here on the planet. What might “work” for an endowment investing for perpetuity is likely completely inappropriated for someone with a bit shorter timeframe. In the rush to this investment craze or that, such simple truths are often forgotten.
4. art pepper | 16 March 2009 at 11:51 am

Gold and ammunition are also good investments right now.