As the owner and publisher of over 10 investment newsletters, I’m often asked the following question by investors…
“What’s the purpose and usefulness of a financial newsletter, especially if I already have a stockbroker and/or financial planner?”
Let me answer that by sharing a personal experience. It happened last year, before the financial crisis began, when few market thinkers were already warning of it.
My story is 100% true. I’ve changed one name to save the poor soul from extreme embarrassment.
I’ll start my story on September 29, 2008, when I was driving back from Bethany Beach, Delaware. The market had been closed for about 30 minutes when I got a panicked call from “Bill the Financial Dude.”
Bill, who’s about 35 years old, was an up-and-coming investment planner. . . and landed me as a client in 2007.
Though I manage 75% of my investments personally, I passed off the other 25% to Bill for estate tax purposes. Up until about a year ago, these funds HAD BEEN invested in the market.
On the day Bill called me, the Dow had dropped 873 points. . . or 8%.
When I answered my cell phone, Bill was frantic. . .
“Brian. . . how far do you think the market is going to drop??? What are you doing now??? What do you think I should be doing??? Is it too late to sell??? (By the way, the Dow closed that day at 10,365.45. It’s currently down another 25% from those levels.)
I swear I heard his voice quiver. . . about to shed a tear. . . or maybe 100.
That’s right. This was my financial advisor.
He was now calling me to get advice!
Because between September ’07 and February ’08, I fought with him and his company to get my family and me out of the market and into cash.
This was the boilerplate reply I got every time I wanted to go to cash:
“Brian you’re making a mistake. You’re not thinking rationally and not abiding by sound investment principles. You should be averaging down on quality positions. I urge you to reconsider and get back to me next week.”
I finally was able to get my (as well as my parents’) investment funds out of the stock market and into cash in February ’08.
What follows is my email conversation with Bill regarding this matter. I’ll pick it up in April of last year. . .
From: “Bill the Financial Dude”
To: My mom and dad
Date: Tue, 1 Apr 2008 10:37:33 -0400
Mr. & Mrs. Hicks,
It’s time to revisit your investment strategy and decide what to do. We moved to cash a couple months ago in your IRA accounts, and I feel it’s time to review our options and make some changes. Let’s schedule a phone meeting. Does early evening work best for you? Let me know a couple dates that work for you.
“Bill the Financial Dude”
In the above email message, Bill was going behind my back in an attempt to convince my parents to get back into the market. . . and I’m talking about growth funds!!!
My mom forwarded his email to me. . . and here’s my reply to mom. . .
From: Brian Hicks
Subject: FW: Mom Hick’s IRA
To: Mom Hicks
Date: Wed. April 2, 2008, 4:47 PM
Mom, don’t do anything he says. The markets are undergoing once-in-a-lifetime turmoil. . . and he doesn’t have any idea how to work thru this.
-Your loving son
That stopped Bill the Financial Dude for a couple months. But by June, he was back wanting us to jump into the market full bore.
From: Bill the Financial Dude
To: ‘Brian Hicks’
Cc: Mom Hicks
Subject: RE: Mom Hick’s IRA
Sent: Wednesday, June 11, 2008 4:40 PM
Brian and Mom Hicks,
I left a message on your voicemails on Monday. There is a lack of communication between the three of us. Please tell me what I can do to help you. I’m trying to set up a 3-way phone meeting to talk about your accounts. It is very important that we do this.
The IRA was initially in a growth and income allocation. We went to cash in February at your request. Since the fund is a C share, there is a 1% deferred load if sold within one year. The load will drop in one year or in July. My recommendation was either to stay in cash or move out of cash into a moderate or balanced fund until you decided what to do with the money. I want to talk with you before I do anything.
Regarding the LPL analysts (their report said the worst was behind us), I’m not going to debate the validity of any economic report. You understand that there are many credible sources that have different opinions on everything. It is our job to take information and do the best we can with it, knowing that the predictions could very well be wrong. LPL’s quarterly review is one source’s interpretation of the economy and certainly not the only source I use.
When it comes to recommending an appropriate fund for you or any other client, there are many other considerations than what the economy, specific sector, or security is doing. One challenge that we have is trying to address growth, income, liquidity, market volatility, fees, and account minimum needs with a small amount of money. Getting in and out of securities generates trading costs that directly affects the returns. More trading costs equal lower returns in many cases.
Bill the Financial Dude
“Whatever” and “You’re fired.”
Then came this earlier this year. . .
From: Bill the Financial Dude
Sent: Thursday, January 15, 2009 9:00 AM
To: ‘Brian Hicks’
Subject: An Obama bounce?
I’d like to talk to you about the stock market. How does Wednesday at noon sound? I’ll come by your office and we can get a bite to eat.
One of my many goals this year is to get a better handle on the economy. I’d like to talk about the sources of information you have that help to predict market trends. A year ago before the credit crisis, you were bearish and in cash when everyone else was more or less fully invested. Apparently a lot of people are missing information that turns out to be costly.
And that, dear reader, is why investment newsletters exist. We give you investment ideas that the parochial investment planning industry cannot.
Are we right all the time? Of course not.
But unlike the financial planning industry, we’re not salesmen for a specific family of funds. We live and die by the big investment ideas we give you. When we were talking about Peak Oil as early as 2004, we were laughed at, ridiculed, and even called “Peak Freaks” when we appeared as guests on Fox News.
But we stuck by our prediction that oil would trade above $80 a barrel. It did.
The bottom line is this: if you make money following our research, you’ll stay with us. If you lose money, you won’t.
That’s about as academic as it gets.