Beware of these two finance gurus

Jessica

Jessica Irvine is a Senior Economics Writer at the Sydney Morning Herald, one of Australia’s premier legacy media outlets. She’s kind of a big deal.

I’ve been following her with bemusement for a while, mostly because of her far-fetched stances on some issues. For example, she’s one of those jaded feminists who proclaim true equality will be reached when child-care is provided free by taxpayers (men) so that strong, independent single mothers like her don’t need to depend on any particular man.

Her reasoning powers are also on display in this TV appearance where she claims that a federal minister accused of rape (via a letter from a dead woman, not a police complaint) should not be given a ‘platform’ (press conference) to defend himself. On the grounds that the accuser can no longer speak for herself. Jessica’s not saying he’s guilty of course, just that men in parliament need to be ‘held to a higher standard’ and that ‘the Prime Minister should take a stronger stance’ (sack him without evidence).

Yikes, I only just found that one when searching for her qualifications. This was going to be a gentle piece but now the gloves are off. After all, such a prominent person with a national platform should be held to a higher standard.

Back to finance. Some time ago, Jessica gregariously wrote posts listing her exact superannuation savings, the cost of her house, and hinted at what deposit she’d put down and how’d she’d managed the financing – a bit of help from Australia’s most trusted institution, the Bank of Mum and Dad. No shame there. The median house price in Sydney and Melbourne is around $1M so purchasing a home is an intergeneration project.

I was a bit cheeky and put these nuggets of info together to estimate her net worth. It came out a little lower than mine. We are about the same age.

So what, you say. It’s not a competition. In the superannuation article, Jessica points out correctly that she’s well on her way to a comfortable retirement. She’s achieved a solid financial footing for her own circumstances and I wish her all the best, whatever her views on stealing my money to raise her child or emotion-based standards of proof.

However, you’ve got to remember the differences between us: she’s a Senior Economics Writer at one of Australia’s oldest and most prestigious newspapers, presumably holds an advanced degree in economics (couldn’t find the details) and presumably (???) has extensive professional experience a bogan like me can only dream about.

I’m an unemployed loser who self-published a book on personal finance for hapless proles like myself. My formal qualifications are mostly useless, I’m not very bright and I don’t even have a strong back.

Yes she has a kid but (a) that was her choice and (b) doesn’t she therefore have a bloke somewhere paying her child support? Australian law is pretty clear on that.

With her higher income plus vast expertise, I’d expect Jessica’s total wealth to dwarf mine.

What the hell is going on?

William of Ockham spotted a clue that I missed. Great blog, by the way.

Jess tells us she’s knocking on the door of her 40th year and has never invested in stocks outside of her Superannuation fund, which presumably is managed by somebody else. I’m not sure this is the sort of admission a “Senior Economics Writer” should make in public. One would be sceptical of a surgeon who admitted to never actually holding a scalpel, after all.

But still, not one to be worried by inconveniences such as competence, capability or knowledge, Jess has announced she’s going to be sharing her top stock picks over the near future . . .

Curious minds might wonder at this point, why Jess’s investing strategy is limited to the Australian exchange, especially as most major tech companies are on the NASDAQ and the world’s major corporations are listed in London or New York? Keep wondering, as we aren’t told. I’m sure it’s nothing to do with a lack of knowledge and experience.

Bill then makes the cruel assertion that she only got the gig cos tits, and for the same reason her editors were too cowardly to nix this article before she inflicted it upon us. I’m not sure. It’s no doubt part of the picture, but not all of it – wasn’t there a smarter female candidate for the job? I’m thinking connections but I’m far outside the rarified world of legacy media so I really have no idea.

Source: Sydney Morning Herald

You’d think a Senior Economics Writer would be educating her readers but instead the opposite happened – all the comments schooled her on the proven superiority of indexing.

There is a caveat to this, of course, and it’s one that you’d expect should to apply to a Senior Economics Writer: experts can achieve alpha through their stock picks, i.e. they can beat the market average returns guaranteed by index funds. My book advocates index funds specifically because the target audience is non-experts. And when I say ‘expert’, I mean it. I probably know more about finance than 92.5% of the public but I still index. A large part of wisdom is knowing your limitations.

Further, in Australia there can be tax advantages to indexing. You have to be killing it on the market before stock picking is worthwhile.

I think Jessica’s readers have realized that she’s not an expert, whatever her grandiose job title might say, and that she is far better off following the everyman route to investing.

I checked up on her column and it looks like she’s adopted the wisdom of a fool and is backing away from picking her own stocks. Days after her blunder she suggests that ETFs are most suitable for beginners (like herself, though she won’t say the words). I’m not sure why she said ETFs specifically as not all index funds are ETFs. The traditional index fund (confusingly called a ‘managed fund’ but not an actively managed fund) tends to be more fee-efficient unless you’re making frequent trades.

Perhaps she doesn’t know the difference. In fact, she sounds like she’s only just heard about index funds. When I began my journey into investment research, they were the first thing I discovered.

Anyway, a few days later Jessica reported on an lunch with some economists (an intervention?) who convinced her that picking individual stocks is a bad idea for most people.

I’m sure Jessica will be fine in the long run with all these knowledgeable experts and commenters pointing her in the right direction. Angels watch over drunks and fools.

Update: She’s decided to buy an ETF. I won’t go through the whole article but simply list three problems: (a) No international diversification as Bill pointed out, (b) she still seems to think that ETFs are the only kind of index fund and that you have to go through all this brokerage nonsense to get one, and (c) she’s nervous about having her 5k on the volatile market, which may cause her to panic-sell during the next downturn – the worst possible time.

But that’s enough of Jess, let’s move on.

Mark

Lest you think this is the only case of lacklustre advice in the mainstream media, I’ll give you another. This time I won’t use his real name because I’m accusing him of worse than an innocent daftness. Let’s call him Mark Hadley.

Image credit unknown but the picture is of this guy: https://www.youtube.com/watch?v=h3I2jhWAQt0

Mark was once a financial advisor working in Perth and he seemed like a pretty good one. I knew about him because he had an excellent free website explaining the basics of investment. That was where I learned about the advantages of indexing, not timing the market, that sort of thing. It was an old skool, 90s style site like Angelfire consisting of fine, colored text over a black background.

The site disappeared and Mark reappeared in the same newspapers as Jessica, singing a different tune.

He was now a stock broker and was peddling the snake oil of stock picking, timing the market and being skeptical of diversified portfolios. His shtick now is that you have to pick winners in order to generate decent returns and be ready to sell everything at the right moment to avoid the losses of a market crash, rather than calmly sit it out as he previously recommended.

Why the change?

Well, stock brokers make money when people buy and sell shares, just like real estate agents make money when people buy and sell houses. If people are putting away money every month into an index fund for twenty years and not touching it except to rebalance, stock brokers are out of work.

Unlike Jessica, Mark knows better. He’s written a whole website explaining why his original approach was better. Now he’s drumming up business by selling fear and greed.

It’s psychologically possible that Mark is convincing himself that this nonsense is right and that his expert assistance really would steer average investors towards higher returns. Deep down, however, he must know that it’s the wrong approach.

He might be telling himself that his column is only intended for sophisticated investors. Again, phooey. If you’re getting your finance tips from the newspaper, you are not an expert.

As stated, there are people around who can successfully pick stocks and time the market. As those kindly economists explained to Jessica, however, those people need to be hot in order to win because usually all factors are known to the market and are already priced in.

This is why hedge funds buy office space a short distance from Wall Street – their supercomputers using brilliant algorithms can detect a profitable arbitrage and make the trade a tiny fraction of a second before their rivals. For the average person, stock picking and timing the market are a fool’s game that can end up costing a lot of money.

The research is very clear on this: most people lose. Most stock-pickers lose. Most market-timers lose. Those non-experts who invest broadly and steadily over the long run, win.

I hope you sleep well at night, Mark.

Conclusion

The underlying problem with the financial media is that the information required by ordinary people is simple and dull: invest in diversified index funds over the long term. Buy a house, if you want one. There are alternative investments out there but this paragraph is good enough for 85% of the Sydney Morning Herald‘s readership.

I’m not claiming that I’m qualified to be a Senior Economics Writer for a major news outlet. That requires someone who’s studied hard economics, the stuff with lots of tricky stats in it, and who has plenty of private-sector experience.

I couldn’t find out anything about Jessica’s background but she’s clearly out of her depth. Mark is within his depth but is holding his readers’ heads under the water.

Let this be Case 2,309 in my ever-growing file of reasons not to trust experts. This is why no one takes them seriously anymore. Coastal areas are about to flood? We have to wear face masks in the park? White supremacists are the most dangerous terrorist threat? Anyone accused of a crime should be fired? Everyone should pick stocks?

What a bunch of clowns.


8 comments

  1. Klaus · May 17

    A very interesting post – thank you. It had me think again of something…no rudeness intended…are Australians more stupid than folks in other developed countries? Of course being financially prudent and being frugal are Boring As Shit but when I try to gently suggest that things might be in a bubble, to my Australian rels and friends, I get (mostly) no reply or (rarely) polite disagreement.
    My only possible answer is that countries like the US or Germany simply have more opinions from successful people than a small country like Australia, i.e. a possible crash is less of a fringe idea.
    The only “justice” that’s going to come will be the “Peter Schiff Was Right” style YouTubes where some bloke gets laughed at and then is proven to be right – something terrible for otherwise decent, nice people.
    Serious question: what metric can one use later to determine the level of stupidity in the various countries? Unemployment levels? Foreclosure levels?
    Keep up the good work.

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  2. “Superannuation” sounds like you’ll get the money in a big bag at your 110th birthday party.

    Picking stocks is a crap shoot, but that is the last thing the “money media” want you to know. They are not there to inform you. You are their prey.

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  3. Pingback: Beware of these two finance gurus | Whores and Ale
  4. Wolf · May 18

    Numerous times I’ve talked to family and friends about the zero sum nature of trading stocks, forex, etc. and the folly of trying to beat professional investors with stratospheric IQs, intensive training, loads of time, resources, and insider info. They have no counterarguments but like dogs they return to their vomit.

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  5. Kentucky Gent · May 20

    I have a high IQ and a doctorate in physics, so I am confident enough in my intellect to pick individual stocks. Let me tell you, it IS hard! The amount of study required is, essentially, the equivalent of having a second job. And the learning curve is very costly. And, in the end, you still have to train yourself to not sell, but BUY, when the market is dropping. And also to not sell when people are screaming “It’s a bubble! A crash is coming!”

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  6. Pingback: Word from the Dark Side – the Lizardman Constant, lazy studies, long-lived larrikins and leaving money to the government | SovietMen
  7. That’s interesting!

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