Cramer and His Colleagues Are Killing Your Returns

The Wall Street bullies want you to continuously trade your money. It’s ok if you want to gamble and speculate with your investment money. However, trading will and does result in very poor results. Keep in mind there will be a select few that succeed and earn a spectacular return. This is a matter of luck and not skill. No one can consistently earn superior returns. The market rate of return is there for the taking, take advantage and succeed, long term.

Investment Conference
Investment Conference (Photo credit: Salmaan Taseer)

In his excellent book, Think, Act ,and Invest Like Warren Buffett, Larry Swedroe summarizes data indicating that individual investors achieve poor returns. This data shows individual investors who rely on brokers and others who claim to be able to “beat the markets” underperform market returns that are theirs for the taking. The only winners are the brokers who “advise” them and the advertisers on shows like Cramer’s, who do their best to convince you they have an expertise that doesn’t exist.Since Cramer appeals mainly to high-testosterone men, it seems logical to inquire about the investing prowess of this demographic. One study showed that men trade more and have lower returns than women. The underperformance was more pronounced when comparing single men and single women.

The authors concluded that overconfident investors place too much confidence in the information they are getting and overestimate their expected gains on trading. There appears to be an inverse relationship between the amount of confidence and returns. The more confident you are, the worse your returns. Maybe that’s why Cramer always seems so confident of his advice.

Since women outperformed men, how did they do against market and risk-adjusted benchmarks? The same study demonstrated they underperformed.

Maybe you watch shows like Mad Money with members of your investment club. Too bad. Another study of 166 investment clubs showed the average investment club underperformed a broad-based market index by more than 3 percent per year for the period examined.

Perhaps you’re thinking this data applies only to investors of “average” intelligence, which (obviously!) excludes you. According to Swedroe, a study of the performance of investment returns earned by the Mensa Investment Club between 1986 and 2001 showed returns of 2.5 percent per year. During the same period, the S&P 500 Index earned 15.3 percent. To qualify for admission to Mensa, applicants must demonstrate intelligence test scores in the top 2 percent of the population.

If you believe the Wall Street bullies have your best interest in mind follow Cramer’s advice. These shows are for entertainment and to sell advertising not to help with your finances. Viewers have very short memories in that Cramer’s recommendations result in very poor performance. Fire your broker….hire an investor coach.

Please comment or call to discuss how this affects you and your financial future.

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