One of the things we have harped on around here is the tendency for humans to be backwards looking in their sentiment.

The Recency Effect means we monkeys place disproportionate emphasis on recent stimuli or observations, regardless of worth or significance. Indeed, investors become bullish after they buy stocks, bearish after they sell them, as part of the self-rationalization process to justify their actions.

Consider: In October 2007, 4 days from the all time market top, the WSJ discussed how unlikely another 1987-like crash was (Exorcising Ghosts of Octobers Past). That was a backwards looking perspective, coming after 5 years of upwards market movement.

Perspectives sure changed following the economic collapse: One week after the Flash Crash, the WSJ noted how “the May 6 selloff had parallels to 1987” (How the ‘Flash Crash’ Echoed Black Monday); Is it any surprise that a 55% collapse in indexes during the prior 30 months subsequently impacted the tone of that article? (Note: We discussed both of these articles here).

The above psychological factors are what makes me point out the following two economic comments making the rounds. They fall into the category of recession-porn, and are worth considering.

The first is an “An Important Note Of Caution” from motivational-speaker Tony Robbins. He references a Trader who got the 1987 crash correct, then was wrong and lost money for many years, then made some good calls, and did not-great-but-good in 2008. Robbins references this trader as a warning about the next economic collapse. Without access to the person’s trading history, it sounds more like a case of Fooled by Randomness to me.

The second is mark Cuban’s recent pronouncement to “Put Money in the Bank,’ Not Stocks.” In a blog posting, Cuban noted that The Stock Market is still for Suckers. Note that cash has outperformed stocks over the past 5 years. Such pronouncements to “sell stocks, go all cash” from Cuban would have been quite valuable in 2005, less so in 2010.

(UPDATE: Cuban responds here)


I don’t doubt the business acumen of either of these gentlemen; Each is wildly successful in their chosen fields. However, I cannot help but note that neither of their fields involve analyzing the data that goes into determining economic or market collapses. Indeed, it smells more like a case of Recency effect than anything else.

Note that I am not talking my book: We have been mostly cash since May 5th (as much as 100% then, 50% cash in June). We are now over 80% cash, and are looking for a move down towards 950 on the SPX. So what both of these commentators are saying actually matches both our positioning and our perspectives (as well as this AM’s futures).

What I am pointing out is the unusual perspective of two businessmen discussing a crash that is so far outside of their expertise, following a 55% drop from the market top, and a 16% drop from the April highs. Perspectives such as this would be more valuable before, rather than after, a huge crash. (We will revisit these in 6 or 12 months).

It reminds me in some small part of the parade of sports figures and celebs on CNBC in late 1999 discussing their equity trades, or the Playboy bunny turned RE Agent in 2005 (also on TV) just as that market peaked. These were all late cycle momentum calls, as opposed to insightful analysis based on new data, fresh perspectives, or creative research.

I doubt the Cuban/Robbins calls rise to the level of full contrary indicator, but it makes me nervous to be on the same side of the trade of what can be described as “scared” or “dumb” money.


Experts, Crashes, Media, Skepticism (February 19th, 2009)

1987 Redux: Impossible or Likely? (May 18th, 2010)

An Important Note Of Caution
Tony Robbins, August 3rd, 2010
Tony Robbins Economic Warning (You Tube)

The Stock Market is still for Suckers and why you should put your money in the bank
BLog Maverick Aug 20th 2010 11:24PM

‘Put Money in the Bank,’ Not Stocks, Cuban Says: Chart of Day
David Wilson
Bloomberg, Aug. 23 2010

Category: Contrary Indicators, Markets, Psychology, Really, really bad calls, Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

61 Responses to “Celebs’ & Billionaires’ Economic Warnings ?”

  1. Dennis the menace says:

    Hey, when you’ve been on “Dancing with the Stars” you can criticize Cuban !

  2. Look, there is little upside in me taking on giants like Cuban and Robbins.

    But the parallels to the parade of bullish Sports Stars/Celebs/Musicians seemed worth pointing to those who care about these things.

  3. Peter North III says:

    Wasn’t there a porn star on CNBC discussing her holdings ?


    BR: I think I would have remembered that . . .

  4. HEHEHE says:

    “Shallow Hal Needs A Pal” Remember that Barry, remember it!

  5. schmoo says:


    Do you feel there is something to social mood impacting how people act and influence events? I have always found such discussions (i.e. Elliot Wave Theory, “Extraordinary Popular Delusions and the Madness of Crowds”) fascinating.

    Nowhere near qualified to discuss economics, James Kunstler does paint a picture of current social mood (and it ‘aint good) —

    You’re a GREAT hard nosed numbers and facts guy. I’d love to hear your thoughts.


    BR: Yes, the problem is discerning between when the public is identifying a new trend and when individuals are engaging in backwards looking sentiment . . .

  6. Petey Wheatstraw says:

    “. . . it makes me nervous to be on the same side of the trade of what can be described as “scared” or “dumb” money.”

    When the economic nightclub is in flames, everybody, regardless of any discriminator, heads for the door.

    There is no other side.

  7. dead hobo says:

    schmoo Says:
    August 24th, 2010 at 7:59 am


    You’re a GREAT hard nosed numbers and facts guy. I’d love to hear your thoughts.

    You do on a regular basis. On one hand, he has names, dates, details, and the ability to draw a full picture and tell a great story about a past event. Then, almost in the same breath, you will see a magic chart or some form of magical thinking try to make a similar point about a future possibility. The occasional prognostication that is right become known as a legendary great call … although all wall streeters do the same thing as a part of the wall street business model.

    Wall Street needs, as a part of IT’S business model, the myth that some people with extraordinary and mysterious talent can foretell future economic events through one means of divination or another. Rubes, pension managers, retirees, and others with large piles of savings then find the prognosticator they like the best and decide that person is usually the most right. Most lose money unless the markets are in a period of asset inflation … then all make money and think their guru is an absolute genius.

  8. Dead Hobo:

    I don’t use “magic charts.” I take a weighted evidence approach, using a much provable statistical data to make the highest probability bet I can assess.

    As to predictions, please read this from 2005: The Folly of Forecasting

    We do them for fun & marketing, but do not use them for anything else

  9. dead hobo says:

    Correction to above: BR admirably foretold of a housing crash long before it actually happened. No magical thinking was involved, however. Just solid fundamental analysis.

  10. Charles Maley says:

    It is tough to make predictions, especially about the future. – YOGI BERRA

    How did we ever get to the point that millions of people truly believe that a bunch of suits actually can predict the future?

  11. wally says:

    But what does your shoe-shine guy say? Thats the guy who’d know.

  12. CJBob says:

    Such pronouncements to “sell stocks, go all cash” from Cuban would have been quite valuable in 2005, less so in 2010
    Great point right up to here. No one can know whether this is more or less valuable since it is forward looking.

  13. KmanNYC says:

    Couldn’t this also be taken from the perspective of, we are 60% off the March 09′ lows?

  14. john-nicholas says:

    “It reminds me in some small part of the parade of sports figures and celebs on CNBC in late 1999 discussing their equity trades…”

    Lenny Dykstra is 168-0, bro.

  15. rktbrkr says:

    Every celeb loves the ego boost of being interviewed – especially topics like finance & politics. The appearance of these articles reflects the bias of the interviewer as much as the interviewee. Cuban & Robbins could have been spouting from Day 1 but they only get street cred when interviewer gives them a podium. They make the news when the interviewer feels it will be a popular point of view.

  16. Lugnut says:

    Look at it this way Barry, if you follow their advice, the absolute worst you can do is lose 0% of your principal. Considering the overall performance of a lot of hedge funds these past couple of years, thats not bad. I’ve seen a lot worse advise come falling out of the mouths of 80% of the folks on CNBC.


    BR: Look at it this way, if you ignored the advice to cover shorts/go long in March 2009, you only would have lost 0%.

    You cannot sit out life forever — and I want to emphasize its the process, not the outcome that matters

  17. call me ahab says:

    I watched Tony Robbins’ video a few days ago- not earth shattering insight by any means- but good common sense he was sharing with his audience- in fact he was quite humble in his advice-

    I guess truth seekers don’t like hearing things from non-PHd types who aren’t well versed in economics or a trader with a “supposedly” “winning” track record-

    have you considered BR- that the stock market has been the beneficiary of a demographic blip that was the baby boom-

    who are now checking out of the rat race as they head into their golden years resulting downward pressure on all assets

  18. rktbrkr says:

    Remember Jim Cramer said June 30, 2009 would be the bottom of the RE market. I guess it might have been the bottom somewhere.

    Another big RE downleg will be really bad for the economy especially a move down in concert with stock prices, the old wealth effect in full retreat.

    No growth in jobs, no growth in discretionary spending, no wealth effect, no growth in discretionary spending.

    The missing fundamental stimulus is export growth and the only way to get that in a significant way is a really big dollar decline but the Euro still has more than it’s share of problems and China Inc will fight to keep the currency status quo. A weak dollar exports unemployment to China.

  19. [...] Mark Cuban and Tony Robbins hate the stock markets right now, should we care?  (TBP) [...]

  20. call me ahab says:

    BR admirably foretold of a housing crash long before it actually happened. No magical thinking was involved, however. Just solid fundamental analysis.

    DH- no doubt- the housing crash was like a head on collision with a freight train- didn’t take too much “savvy” to pull that call-

    however- it lasted about a year or two longer than I thought it could- but when that last of the “players” tried to sell their home and their were no buyers- that happened almost overnight- because all the chumps already bought in


    BR: Didn’t take much savvy? Then why did so few people see it coming?
    Talk about Monday Morning quarterbacking — Jeez, you and DH appreciate very little.

    Do me a favor, please take the other side of every trade I make.

  21. insaneclownposse says:

    The market is grinding down because of shitty economic news. A crash is unlikely at this point. That being said, it is the end of the summer and, historically, that can bring a lot of volatility.

    I don’t think you give Cuban much credit. I think he is pretty smart about the stock market. When he sold to yahoo he put on a well known trade in which he collared his stock. Here’s a link describing the trade

    He’s not a market novice by any means. There are better contrary indicators.

    Mark: call me, I need a job. 8)


    BR: I like Cuban — but I suspect you may be giving him to much credit for what he did — cashing out a company for a Billion plus (another stupid Yahoo acquisition) then being cautious enough to collar the sale proceeds — that is not the same as havign a brilliant economic insight or ability to do great market risk analysis — he was simply locking the door to the vault.

  22. investorinpa says:

    I just read Cuban’s article and Tony Robbins video. I found the Robbins video was very spot on in terms of what to do going forward and full of common sense, just as Ahab mentioned. Sometimes, the same advice presented in a different way by a different person hits ya better.

    Look, I can’t predict the future as nobody else I’ve ever met can either. But I can tell you what I see…lots of my friends are struggling, some are doing very well, and some are just getting by no different than they were 10 years ago. What I DO see is a general sense of more bargain shopping, more coupons being used, more parents telling their kids they can’t buy that extra 2 toys but they can get one. I get calls from my insurance guy begging me to give names of potential clients for him. Former realtors of mine are sending me stuff even though I told them I am done buying investment properties (I had 17 units at one point). The guy who bought my car wash from me (a loss I took) in April 2008 is struggling and has not implemented any of the upgrades he needed to do (and he’s been in the car wash biz for 20 years).

    What this tells me is a sense of general malaise, a zombie like going-thru-the motions while praying for better times is upon us as a nation. We don’t see our politicians favorably. We don’t see our neighbors who have stopped paying their mortgage but continue to live in our neighborhood with any affinity. We don’t trust our “finance guys”, whether it be a banker, broker, or our credit card company who just lowered our limit even though we never missed a payment. Essentially, things suck right now but there is just enough optimism out there that suggests that if we make it thru this ditch, a clearer road lays ahead of us. And that’s what Robbins video & my personal observations say to me.

  23. dead hobo says:

    call me ahab Says:
    August 24th, 2010 at 9:16 am

    DH- no doubt- the housing crash was like a head on collision with a freight train- didn’t take too much “savvy” to pull that call-

    Yes, but a lot of people didn’t believe it would be this bad, including me in my naive youth. To me, it was inconceivable that so so many smart people in so many influential positions could be as monumentally stupid as they eventually proved to be.

    To make a contrary call based on fundamental reasoning and not magical thinking , stick to it in the face of profound and stubborn idiocy from the smart money, and be right is a proud achievement. The fact it was even worse than the worst case scenario is a nit being picked in this context.

    Since there has been little obvious interest in learning from mistakes in the general stock market arena, I have since come around and give nearly nobody the benefit of a doubt when they have a track record of activities or remarks that defy real world thinking. In fact, the con man model (Read “The Big Con” for a good history of con artistry in a historical context and “How To Steal Anything” for a modern twist on an old game)) and fits best.

  24. dead hobo says:

    Barry Ritholtz Says:
    August 24th, 2010 at 9:26 am

    Dead Hobo:

    I don’t use “magic charts.” We take a weighted evidence approach, making the highest probability bet we can assess.

    I know. From what I have seen of your service, the charting you sell is more of a current statistical variety that is more like the SPC an engineer or QC pro would use than magical thinking. It has value in markets that have stocks that don’t work in unison and have participants with many interests. I can’t wait for those times to return.

    That being said, you frequently put (although less so lately) some charts in this space that imply your belief that history repeats and we are helpless pawns in a greater, predistined system. For this I thank you because it given me a great outlet for creative writing.

  25. TheUnrepentantGunner says:

    for what its worth, Cuban has been bearish for several years, and had an earlier blog post (can’t see it since its blocked here) that stocks were a suckers bet as far back as 06 or 07 maybe?

    Anyway, doesn’t change the tenor of the article, and doesnt change the comments that Tony Robbins was surprisingly reasonable with his assessment.

    One of the great paradoxes for me is that really people are best advised to look at the evidence themselves, since there are talking heads, all persusasive, taking any position you want on any issue, but the reality is most people simply don’t have the capacity to make a better than average judgement from the data available, either becuase of lack of processing power, or because the data is unreliable or incomplete.

    Something i am trying to figure out in my own life, mostly on things non-financial as well.

  26. Petey Wheatstraw says:

    dead hobo Says:
    “Yes, but a lot of people didn’t believe it would be this bad, including me in my naive youth.”

    DH: You ain’t seen nothin’, yet.

    What’s coming is going to make old folks out of all of us.

  27. GreatWarrior says:

    Barry, “We are now over 80% cash, and are looking for a move down towards 950 on the SPX”

    This is really helpful. Many THANKS for sharing your insights.

    Please share with us whenever you see a TURN in the market. Really Appreciate.


    BR: I’ve mentioned this before, on the blog and elsewhere.

  28. dead hobo says:

    Sorry, I messed up the book titles.

    The Big Con – The Story Of The Confidence Man by David W Maurer

    How To Cheat At Everything by Simon Lovell

  29. call me ahab says:

    You ain’t seen nothin’, yet.

    PW- I tend to agree w/ that thought

  30. jasong says:

    Hussman has a pretty gloomy write-up this week…. yes, gloomy even considering Hussman’s view on the market for the last few years.


    BR: I am much more interested in the process that Hussman uses than Tony Robbins repeating Trader gossip

  31. rktbrkr says:

    “provided the economy consistently adds jobs” WOW even the NAR is hedging!

    July Existing-Home Sales Fall as Expected but Prices Rise

    Washington, August 24, 2010

    Existing-home sales were sharply lower in July following expiration of the home buyer tax credit but home prices continued to gain, according to the National Association of Realtors®.

    Existing-home sales1, which are completed transactions that include single-family, townhomes, condominiums and co-ops, dropped 27.2 percent to a seasonally adjusted annual rate of 3.83 million units in July from a downwardly revised 5.26 million in June, and are 25.5 percent below the 5.14 million-unit level in July 2009.

    Sales are at the lowest level since the total existing-home sales series launched in 1999, and single family sales – accounting for the bulk of transactions – are at the lowest level since May of 1995.

    Lawrence Yun, NAR chief economist, said a soft sales pace likely will continue for a few additional months. “Consumers rationally jumped into the market before the deadline for the home buyer tax credit expired. Since May, after the deadline, contract signings have been notably lower and a pause period for home sales is likely to last through September,” he said. “However, given the rock-bottom mortgage interest rates and historically high housing affordability conditions, the pace of a sales recovery could pick up quickly, provided the economy consistently adds jobs.

  32. Petey Wheatstraw says:

    Glad to know Larry Yun is okay. ’Til now, I had suspected he had choked to death on his previous predictions.

  33. MV says:

    I agree with your overall point, but I have a question: With the flood of information now available to us, isn’t it more difficult to gauge anecdotal sentiment? We’re not in a world where a only a few people or institutions have a platform to represent dumb money, and there isn’t one Newsweek article that can capture sentiment. Everyone has a platform and a blog to express their dumbness.

    When I watch CNBC, I see a ton of examples on the other side of Robbins and Cuban, supposed stock market celebs who say “the selling is overdone, the economy is recovering, etc”. So there’s dumb money on the bullish side and dumb money on the bearish side. Which representatives of dumb money should we be contrary to, and how do we decide? Who’s dumb, and who’s dumber?

  34. MaciekKolodziejczyk says:


    I don’t want to sound too meticulous, but I want to draw your attention to the incorrectness of the phrase “we monkeys”. Humans are apes, but not monkeys.

    After Wikipedia (Monkey):
    The term ‘monkey’ covers all platyrrhines (flat, broad noses) and some catarrhines (nostrils-downwards), but excludes the apes.

    and (Ape):
    An ape is any member of the Hominoidea superfamily of primates, including humans.

    I understand the reason for using the term – showing that animal spirits sometimes dominate our behavior and affect investment decisions. But I think, “we apes” would have essentially the same effect on readers.

    Don’t get me wrong, don’t get offended. I love your site, I love your posts, I am long-time loyal reader. Primarily because you get the facts straight (and use good common sense and logic).




    BR: heh heh . . . Thanks for the insight.

    I use the phrase Monkey in the sense of not making pre-evolved errors

    Some people call this the lizard part of the brain, but I find the word “Monkey” provides the better mental image .

  35. theyAllcrooks says:

    Cuban has written other defensive stock pieces that have been insightful over the years.
    But I try never to forget that:
    Opinions are like assholes… everyone has one…
    When forescasting…….It’s not what you’s what you say you said….! In other words …Leave enough caveats and nibble and scale here and there on your buys
    and down the road you can Blow Your Horn about how you said buy buy sell blah blah …Those who say don’t know ….those who know don’t know..!!!!

  36. Petey Wheatstraw says:

    BR: Tune your server to, once again, handle 100+ comments per post. Here come the chickens (back to the roost).

  37. Don’t forget the celebrity Dubai fad. Will that last?

  38. [...] Are Celebrities Contrary Indicators? Barry Ritholtz casts doubt on warnings about the economy and markets from Tony Robbins and Mark [...]

  39. rktbrkr says:

    A data point with a downside surprise.

    Yearly comparisons of economic data looking very weak as stimuli play out.

    Whats left in Uncle Ben’s bag of tricks?

  40. bdg123 says:

    While there are surely psychology forces at play, there are times when fundamentals warrant a look at reality. That maybe society as a whole is coming to a realization or becoming enlightened to some conditions of the world around them.

    It doesn’t always make sense to take the other side of the argument. When everyone was worried in the midst of World War II, was it warranted? I dunno. 50 million people died. Did a somber mood temper that experience?

    The more likely realization with the examples you give is that a huge swath of society now recognizes that Wall Street is one big, corrupt con game. And what often happens when a huge swath of a social system reaches a realization such as that? Well, the system often implodes. I think I could cite a few thousand years of examples to support that social phenomenon.

    September is going to be an interesting time for equity investors. Sort of along the lines of the supposed ancient Asian proverb wishing their enemies an interesting life or live in interesting times.

  41. A bull market in pessimism

    A lot has to go wrong to justify today’s rock-bottom bond yields

    WHEN Japan slid into deflation in the mid-1990s bond investors were caught unawares. As late as 1995 yields on government bonds, a haven in times of deflation, were still approaching 5%. Investors today are not about to repeat that mistake. Inflation may be positive in America, Britain and Germany, but in all three countries government-bond yields have plunged to lows exceeded in recent times only by levels during the 2008 panic.

    Since falling yields raise the value of bond principal, that has delivered bumper returns to investors. Government bonds have returned about 8% this year in local-currency terms in these three countries, according to Barclays Capital, outpacing equity returns. (Investors in weaker sovereign credits, such as Greece, have fared far worse). As go returns, so go investors. American equity mutual funds have seen net outflows this year of $7 billion, according to the Investment Company Institute, a trade group. Bond funds have had inflows of $191 billion.

  42. gordongekko00 says:

    How is the stock market NOT for suckers? The only people who make real money are those that charge fees. Those paying the fees and those trying to get rich trading or investing are truly suckers.

  43. alnval says:

    Wonderful post. It has clearly piqued your interest and left you dangling in your own curiosity as to what it might really mean. I was glad to see that you had considered the possibility that your appeal to the “recency effect” might just be complicating matters and that Cuban and Robbins could be right. Not a high probability event, to be sure, but more worthy of consideration than the opinions of sports celebs or playboy bunnies when it comes to taking care of business. I think we’ll all be interested in how you finally sort this one out.

  44. jz says:

    Barry, I understand your fear. The feeling of being a part of the consensus is something that I dread. You feel that you are missing something. As a contrarian, it bugs me to no end to now see people jumping on the deflation band wagon.

    The good news for me is that people don’t get how to play deflation. You, an investor I respect, and even some of the CNBC pundits have mentioned that to play deflation, you want to be in cash. That is a decent but far from ideal strategy.

    The best way to play deflation is to be in bonds.

    Even after this huge bond bull run, my broker has told me that I am the only one of his clients who has bought individual bonds, and that makes me happy.

    What also makes me happy is that Cuban and Robins are telling people to sit on their money because they too do not know how to play deflation.

    When I looked over the deflation enviorment and scoured the earth for bonds to buy, the first thing I noticed was how much harder it was to reseach bonds than stocks. That made me happy. On top of that, people still don’t get how bonds work.

    In addition, I loved the airlines precisely because they were so hated. Nothing like investing in something the great God Warren Buffett hates, right?

    What I realized was that airlines could cut capacity much more quickly and with less pain than other businesses could. Furthermore, the labor problems were less of an issue in a decreased demand world. The ever angry pilots were going to feel thankful to even have a job.

    The American Airlines bonds I bought are up 80% (closer to 100% if you count the yield), but I still think they are a buy. Depending on the maturity, the yields are 10 to 15%.

    So the obvious question is why are you sitting on cash getting less than a 1% yield, when you can 10 to 15%? The risk of AA going bankrupt, right?

    Well, to counter that, you insure with stock puts. If AA goes broke, the value of said puts goes to the moon.

    I personally am confident enough to have not bought put protection on the bonds I have bought, however if I were managing other people’s money, I would.

    Now to the other point, how many people do you know have mentioned this long the bond, short the stock strategy, Barry? When Robbins and Cuban start talking about doing this, then I will look to exit. For now, the longer that they talk about being in cash the better chances are that I can continue to buy bonds on the cheap.

  45. call me ahab says:

    BR says-

    Didn’t take much savvy? Then why did so few people see it coming?
    Talk about Monday Morning quarterbacking — Jeez, you and DH appreciate very little.

    good question- but I wouldn’t classify what I am saying as Monday morning quarterbacking-

    there are many people that weren’t on TV that had the same read-

    when I had shoe shine boys at country clubs inquiring about a mortgage on a $500,000 home- that was the icing on the cake of my hunch that it was all going to collapse in grand fashion- is just took longer than I had anticipated-

    in any event- maybe you should read my post as “everyone w/ half a brain should have seen it coming-

    and also I was in agreement w/ you on your call- so why would I take the other side?

  46. mcuban says:

    Does saying it January of 2006 count ? here you go, from my blog Barry

    My Investment advice for 2006

    Jan 2nd 2006 11:12AM

    Every year at this time, everyone and anyone who has a vested interest in selling stocks comes out and talks about how great a year its going to be in the stockmarket. Of course its all nonsense and bullshit. NO ONE knows what the market is going to do.

    Not timers. Not technical charts. Not economists, Not brokerage Heads of Research, Not stock pickers. No one. If you watch CNBC, over the last few months they have taken to putting “experts” who disagree up against each other on stocks and topics. Instead of having carte blance to come across as an expert, they have to offer some support and take some criticism. Its a blast to watch because there rarely is a winner. Its so rare that they get questioned that they have lost the ability to support their own positions. So much for experts.

    If its hard to find an expert who can support their investmen choices, what about mutual funds ?

    According to an ad for one family of mutual funds, there are 17,000 mutual funds on the market for purchase. How amazing is that ? How in the world can there be 17,000 fund managers that are worth a damn ? There cant be. How many are good ? How many suck ? How many of the funds will close every year taking your money with them ? Are you completely confident in the fund that is taking money from your paycheck every 2 weeks ?

    Then of course there are the brokerages. I swear that there are few things that turn my stomach on TV more than watching commercials for brokerages. The guy who gives the toast at the wedding, Paul McCartney, the guy from Law & Order, all trying to con people into thinking that any of their stockbrokers can take you to a financial promised land.

    Well guess what, they cant. Yes there are good stockbrokers that are worth the commissions you pay them, but guess what ? Most of the good ones work with people who already have money, not ones with very little hoping to build a nest egg.

    One fun little thing I like to do is to look at “The Favorites”. The list of the stocks held by he largest number of accounts at Merrill Lynch. These are the stocks that the largest brokerage, with the largest number of consumer clients is being enticed , convinced or directed to invest in. These are the stocks that Merrill Lynch stockbrokers have had the most success selling. They are their favorite products.

    Its interesting how well the names are performing, but also how the names have changed , or in some cases, not changed over the years. A look at the last list of 2005 doesnt inspire overwhelming confidence in the ability of Merrill to pick stocks. 7 winners. 13 losers. Biggest winner was Exxon at 9.7pct. On the losing side, there were 7 stocks that lost 10 pct or more and 3 that lost 20pct or more. And these are the stocks that many would classify as todays “widows and orphans” stocks.

    Of coure they are completely different from the widows and orphans stocks of yesteryear. GM, Ford, Utilities….Just put them away and dont think about them. Now that was good advice wasnt it. And here is the list from Jan of 2002. You havent done so well if you took Merrills advice then, or now. To be fair , Merrill is not better or worse than any other full service brokerage. They just happen to publish their list of widely held stocks.

    So what to do if you want to invest your money ? What to do if you want to end this year with more than you started with ?

    Simple, avoid risk.

    Risk is what Wall Street lies about every day. Risk is what they try to sweep under the covers knowing that we all are addicted to the dream of financial freedom. Risk is the poison that is masked by the commercials.

    When you see a commercial for a brokerage, they are telling you in a very subtle way that they remove risk. Invest with them and the risks regarding investing that you have heard about will be reduced or eliminated because they are so smart. All of which they say before they rush through all the disclaimers that confirm that everything they just said is nonsense, that they cant really avoid risk.

    You can however make the personal decision to avoid risk. Avoiding risk allows you to sleep at night. Avoiding risk allows you to have more at the end of the year than when you started.

    Lots of people spent a lot of money on commissions this year. If you put your money in the bank, in a CD or in treasuries, you not only slept better than them, there is a very, very good chance you kicked their ass in total return. Your interest compounded, they probably paid interest on their investments.

    I get emails every day asking me where people should invest. I tell them all the same thing, and I will say it here. Put your money in interest earning investments.

    For every stock you buy, there is someone selling you that stock. What is it that you know that they dont ? What is it that they know, that you dont ? Who has the edge ? If its not you. Chances are you are going to lose money on the deal.

    If you want more info on how i feel about the stock market, here is another blog entry on the topic.

    So here is my investment advice for anyone who doesn’t have enough saved to walk away from their job and retire…

    1. If interest rates stay where they are or go higher, look at 5 year or shorter maturity vehicles. It doesnt matter if its a bank CD, a money market fund, a tax free fund, treasuries or combinations there of. Bottom line is this, 4plus percent taxed, or up to 6 plus percent tax free equivalent (depending on your tax bracket), is not a bad way to go. If rates go down, do the same thing, evenif you earn a lower rate. At the end of the year, you are guaranteed to have more than you started with.

    2. Evaluate your lifestyle. People forget that sometimes the best investment they can make is in wisely buying things they know they will use. If you track what you use and consume, whether its gas vs bus fare, buying bulk quantities or other discretionary spending, you can save more and earn a far greater return than you could in the stock market. If you can save 10pct per month on a hundred dollar per month budget, thats 120 bucks you can put in the bank. Thats the equivalent of earning 12 pct on a 1k dollar investment. If you can cut 100 bucks per month off 1k dollar monthly budget, thats like earning 12 pct on 10k dollars. Thats pretty darn good. Spend smart, put your savings in risk averse, interest earning offerings.

    3. Invest in yourself. Do the things that can get you closer to your goals and dreams. It wont come from a brokerage commercial. It will come from preparing yourself , working hard and standing apart from your competition. You Inc is the best stock you can ever buy…if you are willing to do the work.

    If you want more going back to 2004

    Happy to compare my markets knowledge to yours anytime barry :)


  47. [...] Are Celebrities Contrary Indicators? Barry Ritholtz casts doubt on warnings about the economy and markets from Tony Robbins and Mark [...]

  48. Andy T says:

    Great Article from 2006 Mark…..

    I think people are really missing the idea that what we’ve probably witnessed the last few decades is just the ‘money flow’ of the Baby Boom generation. The were “sold the dream” in the 80s/90s by Peter Lynch and those “new-fangled” instruments called “mutual funds.”

    When that dream went parabolic and ‘blew off’ in 2000, they fled into “properties” in the form of second homes and those retirement pads down in Costa Rica.

    They’ve now flocked to the last bastion of “safety”: bonds. And, that’s probably where they’ll remain till requirement in several years.

    The key question is this: who buys their “assets?” Who will be the bid to the mutual funds they want to ‘steadily’ unload during retirement? Who’s going to buy their primary residence when the decide to finally live the “good life” down in that “amazing” little place down in (Insert Third World country Name here)?

    When you think about, stocks in general ARE a suckers game. Generally speaking, you’re buying somone else’s “exit strategy.”

  49. Andy T says:

    Please forgive all the typographical errors above….was a quick write.

  50. call me ahab says:


    long- but good post- but much common sense in what you are saying-

    thanks for sharing

  51. philipat says:

    It does seem to have become obvious that the equity markets are rigged to move in whichever direction is easiest at the time to make money for the few. And with computers doing all the trades, I hate to imagine what will happen when the next REAL crash (As opposed to flash crash) comes. Which it will.

    Next years S&P earnings on a GAAP (As reported) basis are $72. Given a historical average of 15X as measured on GAAP) then being charitable, US equities are at a reasonable value. But these are not normal times and the risk is more to the downside. In major secular bear markets, multiples tend to bottom in single digits. Let’s again be charitable and put a 10X multiple on that $72? IMHO, the S&P will bottom at about 825. Anyone noticed how all the pundits talking their book selling stocks on CNBC these days ALWAYS use Operating earnings to make multiples appear lower in support of their claims that “Stocks are cheap”?

    If you’re after low multiple stocks, buy Japan. Look where that got you!!!

  52. rktbrkr says:

    Something to consider as we await today’s NAR shoe drop…

    Immigrants Can Help Fix The Housing Bubble
    by Richard S. Lefrak and A. Gary Shilling

    A better idea is to offer permanent residence status to the many foreigners who are clamoring to get into the U.S. — if they buy houses of minimal values (not shacks). They wouldn’t need to live in those houses, but in order to remove the unit from the total housing market, they couldn’t rent them. Their temporary resident status granted upon purchase would become permanent after, perhaps, five years, if they still owned the houses and maintained clean records. The mere announcement of this program might well stop the ongoing collapse in house prices, especially in cities such as Las Vegas, Miami, Phoenix and San Francisco, where prices are down 40% — but where many foreigners like to live.

    Each year, 85,000 H-1B visas are granted for foreigners with advanced skills and education, and last year, 163,000 petitions were filed in the first five days after applications were accepted. The Ewing Marion Kauffman Foundation estimates that as of Sept. 30, 2006, 500,040 residents of the U.S. and 59,915 individuals living abroad were waiting for employment-based visas. Many would buy homes if their immigration conditions were settled.

    These people tend to be highly productive. In 2006, foreign nationals residing in the U.S. were listed as inventors on 25.6% of the patent applications filed in the U.S., up from 7.6% in 1998. A Council of Graduate Schools survey found that in the fall of 2007, 241,095 non-U.S. citizens were enrolled in graduate programs. Some 55% were in engineering and the biological and physical sciences, compared with only 16% of U.S. citizens. In 2007, more people on temporary visas received doctorates in physical sciences and engineering than U.S. citizens.

    I mentioned this in Bailout Nation, and yesterday morning wrote:

    “Housing has problems with both too much supply and not enough demand. Bring in 3 million qualified home buyers from abroad and the Housing issue goes away.”

    Mauldin mentioned this here

  53. wunsacon says:

    >> the guy from Law & Order, all trying to con people into thinking that any of their stockbrokers can take you to a financial promised land.

    Don’t forget John Cleese!!

    As though these people don’t have enough money from their (outstanding) regular gigs. They leverage people’s love for their past work for some s*** outfit. Obviously, Cleese didn’t know. But, I wish celebrities would exercise some more of their discretion — especially people who already “made it”.

  54. buffettrocks says:

    Mark Cuban has never really been a great investor, in the stock market sense, at least not in the same league as the greats. He was most definitely a great businessman, when he sold his to Yahoo at the peak.

    Seriously, telling people to get out of the market has never really made anyone much money. And when wrong, it really hurts returns.

    The one we should listen to is Warren Buffett. Was he mostly in cash in 2006? No. Was he mostly in cash in 2008? No. Was he mostly in cash in 2000? No. And where is he now? Still invested mostly in stocks, and still one of the top 3 richest men in the world.

    When times are tough, you don’t sell everything. You manage the portfolio to make it less risky and you get ready to buy more stocks on bargains.. Do you ever see George Soros sell everything? No.

    So getting fully out of the market is just asinine, imo.

  55. [...] this morning’s discussion of sentiment (Celebs’ & Billionaires’ Economic Warnings ?) after dissecting the surprise economic warning from Tony Robbins, I also mentioned Mark [...]

  56. philipat says:


    Absolutely with you on that, it makes my stomach churn to see someone like Clease, who has given me so many happy times, and who doesn’t need the money would, “For a few Dollars more” put his reputation on the line for some sc*mbag outfit.

    He pis*ed off lots of folks in the UK recently when half the country was stuck all over Europe because of the ash cloud (That never was, but the Health and Safety sories are another story) by paying $5,000 to take a taxi from Oslo to Holland where he got on a ferry. At least proving that he doesn’t need the money.

  57. louis says:

    Mark you still have a team that cannot compete with the Lakers. But we were at a Dodger game talking this past week and the McCourt situation came up and everyone thinks they need to sell. When asked who could revive the franchise , everyone said this place needs Mark Cuban.

    Could not agree more, Cuban bring some of that passion and money out West.

  58. [...] we discussed the zeitgeist of the moment being bearish.  Try this on for [...]

  59. [...] [The Big Picture] Celebs’ & Billionaires’ Economic Warnings ? [...]

  60. [...] it was Tony Robbin’s economic warnings, the excessive bearishness of Wall Street Analysts, or the the recession porn of the Hindenberg [...]

  61. [...] Robbins: The newest economic sage to warn of the coming economic apocalypse, most recently during August 2010; See also John Tudor [...]