For many sources of financial information, their agendas aren't clear. Be careful who you listen to and take the time to find the ones you deem trustworthy.
It takes only 5 minutes of watching Fox News or MSNBC to recognize the biases in their reporting. It's obvious and in your face.
But for many sources of financial information, their agendas aren't quite so clear.
If you don't understand where people are coming from, you will end up getting excited about an investment that could be completely wrong for you or even a scam.
Let's look at a few examples of bad information I've come across in just the last week.
Recently, there was a Seeking Alpha article in which the writer interviewed a very bullish Wall Street analyst about MannKind (Nasdaq: MNKD).
Unmentioned in the article is that every one of the 21 companies the analyst covers is an investment banking client. Also ignored in the article is that the analyst's firm led a recent offering of MannKind's stock.
Does knowing that information change your view of the analyst's opinion?
Over the weekend, I listened to an awful financial radio show. I'm always listening to the competition since I host Get Rich With Dividends on 1290 WJNO in South Florida. You can also listen to the podcast for free online.
Apparently, the station that this clown was on does not have the same vetting process that mine does. He made 2 statements that had me ranting in my car like a lunatic.
First, he said investors should sell 20% of their stock holdings now because the market had run up more than was expected and since most investors had already exceeded their goals for the past few years, they should take some profits.
Nothing wrong with putting money in the bank, but don't sell just because you made more than the 6% to 8% you expected. An important part of making money in the stock market is letting your winners run.
If you have a stop loss in place that you raise as stocks go higher, you'll get out with a nice profit while giving yourself plenty of opportunity to participate in more upside. You can tighten the stop as the stock rises as well to ensure you capture a large part of the gains. Of course, you can always sell if the fundamentals of the company change.
He also said that the Fed's quantitative easing (QE) program "had absolutely no impact on the economy other than keeping long-term interest rates low." Come again?
Other than employment, interest rates are the most significant influence on the economy. Regardless of whether you agree with QE, it's hard to argue with the fact that the current economy would be in worse shape if interest rates were not as low as they have been over the past few years.
The low interest rates allowed businesses to expand, to acquire other businesses, and to hire new employees. It also fueled the stock market, which helped replenish people's retirement accounts, making them feel wealthier and on the road to spending again.
Why was this guy such a Debbie Downer? Because he sold annuities.
He wants to scare investors into thinking that the market and economy are unhealthy. That way, they'll buy his products, which significantly underperform during a bull market.
There's plenty of room for diversity of opinion in discussing the markets, but this guy was an imbecile. It's scary that he's offering financial advice to people.
The pump and dump
Lastly, be very wary of anyone promoting penny stocks. These stocks are easily manipulated. Nearly every week, I receive a 12-page write-up in the mail about a penny stock, usually energy-related but sometimes biotech. The article talks about how much money investors will make if they invest in the featured stock.
If you look very carefully (and take out your magnifying glass), you'll see that the author or the publisher who sent the article was paid by the featured company to write and mail the article—often hundreds of thousands of dollars and millions of shares of the featured company's stock.
What typically happens is that a few thousand investors get excited about the stock based on what they read and buy the stock, driving it higher. As the stock climbs, company insiders and the promotional company that was paid in shares dump their stock at the higher prices.
And those are the ones who are doing it legally. As long as they disclose the relationship with the company, it's allowed.
There are plenty of companies that hire stock promoters to write articles and post things on message boards who never disclose their relationships with the company. You may think you're reading an unbiased opinion of a company, but in reality, the writer is on the company's payroll.
Who to trust?
There are some great analysts and journalists out there who provide excellent information. But unfortunately, there are many bad ones and those who have undisclosed conflicts of interest.
Be careful who you listen to and take your time to find the ones you deem trustworthy.
Marc Lichtenfeld is a senior analyst at Investment U. See more articles by Marc here.
The information contained in this article should not be construed as investment advice or as a solicitation to buy or sell any stock. Nothing published by Physician’s Money Digest should be considered personalized investment advice. Physician’s Money Digest, its writers and editors, and Intellisphere LLC and its employees are not responsible for errors and/or omissions.