Stewart vs. Cramer: Long-Term Asset Allocation Incorrectly Maligned 22 comments
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By Murray Coleman
Jon Stewart torched Jim Cramer live on TV, but did he do more harm than good by slamming long-term investing as well?
For anyone who didn't catch it on March 12, comedian Jon Stewart put to shame many hard-nosed financial journalists when he caught CNBC's Jim Cramer in outright lies about his scamming ways running hedge funds.
Stewart, host of Comedy Central's "The Daily Show," also blasted Cramer for his less-than-substantive antics on CNBC's "Mad Money" show.
We should all stand up and applaud Stewart's performance. But he took it too far when talking about how his elderly mother had bought into the industry's long-term investing mantra.
Stewart should've stayed on-topic, drilling Cramer and not letting him off the hot seat. Instead, he ventured too far afield when relating the apparent drubbing his mom took in the markets during the ongoing recession.
Although ex-journalist Cramer is the sort of slumdog millionaire we all should be wary of taking too seriously, he could've redeemed himself a smidgen by pointing out to Stewart that long-term investing shouldn't take the rap.
My Parents... and the Importance of Sound Advice
Sitting by the computer watching on Comedy Central's site the next day (see clip here), I couldn't help thinking about my parents. They're both around the same age as Stewart's mom, and while their portfolio has taken a hit as a result of this economic mess, it's still nowhere near a double-digit loss.
As some of you might remember, there was a lengthy review on IU.com's discussion boards a while ago about whether my parents should dump their (unnamed) adviser, who was unresponsive to requests for information about their allocation plan. To make a long story short, most pros and amateurs alike agreed that an unresponsive and overaggressive adviser wasn't worth keeping.
So we dropped the adviser and moved their portfolio to Vanguard. Not only did we save thousands of dollars in yearly fees to fund companies, but we also discovered an amazing statistic while hunting through the maze of paperwork and accounts the adviser had set up: My parents, in their mid-80s, had something like 80% of their assets in stocks!
We since have merged their portfolios into an easy-to-manage 70% bond allocation. By the end of last year, that was up to 80% bonds as the stock portion fell and the fixed-income index funds held their ground. With a large portion in munis, the portfolio is doing even better this year.
Back to Jon Stewart. He was correct in pointing out that investing requires monitoring and it's not as easy as it looks. But when he made the leap to condemning long-term planning, he clearly was ranting—and well beyond his comfort zone.
Someone should let Stewart know that long-term asset allocation isn't an industry-inspired plot to hold investment dollars longer. It's an ages-old strategy with a wealth of academic knowledge behind it that savvy veteran investors have long embraced.
It just takes some thought and preparation. How you allocate assets is critical. In fact, the longer-term focus your portfolio takes, the more due diligence is required in terms of making sure you've got the right plan of attack.
Consider if you had a simple two-ETF portfolio. For all domestic equities, let's take the Vanguard Total Stock Index ETF (NYSE: VTI). With bonds, let's go with the iShares Barclays Aggregate Bond ETF (NYSE: AGG).
The table below shows how asset allocation impacts this simple portfolio's returns on a percentage basis, both over the short and longer term (through 3/17/09):
| Stocks/Bonds | YTD | 12-mo. | 3-yr. | 5-yr. |
| 80/20 | -13.28 | -31.25 | -10.93 | -3.36 |
| 70/30 | -12.00 | -27.04 | -8.93 | -2.48 |
| 60/40 | -10.71 | -22.82 | -6.93 | -1.60 |
| 50/50 | -9.43 | -18.61 | -4.93 | -0.72 |
| 40/60 | -8.15 | -14.40 | -2.94 | 0.16 |
| 30/70 | -6.86 | -10.19 | -0.93 | 1.04 |
| 20/80 | -5.58 | -5.98 | 1.06 | 1.92 |
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The great ideal of long term investing is based on the integrity of financial professionals and them making decisions that enhance long term shareholder value. I think the job of the financial media "experts", and any journalist for that matter, is to act as a watchdog over the financial industry. When the corporate executives make short term decisions with the goal of enhancing their financial gain and the media supports them to gain access and enhance their short term ratings, investing for the long term becomes a losing proposition. Not unlike gambling in Vegas, the house wins and you lose.
I think, that John Stewart was absolute correct to tie in long term investing in his critique. I feel that only by holding corporate executive's and the media's feet to the fire can we regain confidence in the value of long term investing.
I disagree that Stewart went too far. Stewart was correct to slam the "stocks for the long run" mantra of the financial industry. It is worse than a crap shoot (if you don't know what you are doing or you hand your money over to someone else less interested in your future, i.e. an financial advisor). The fact that blind, long term investing has worked in certain markets for certain durations of time says nothing about the future. Due diligence and monitoring is required no matter what and I think that Stewart was correct in criticizing the deception and the empty money-for-nothing promises of the industry.
I agree with 8financial. "Everything works until it doesn't" is what's happening right now... and to quote Warren Buffett, "Only when the tide goes down will you know who's been swimming naked."
A lot of the fund managers have been acting like foxes watching over the hen-house, practically taking advantage of public who were willfully ignorant and acting like the owner of the hen-house giving the keys to the foxes willingly (I am placing blame on both the perpetrator and the victim). It works until it doesn't.
It is like the emperor who has been walking the streets naked. Once the hype is gone and the turd hits the fan, all hell breaks loose, and the public goes flailing around like headless chickens.
The bottom line is this: we are all in this together and there won't be victims unless we allow ourselves to be victimized. Ignorance and
complacency can harm us.
On Mar 19 12:09 PM 8financial wrote:
> Everything works until it doesn't
Cramer shouldn't have taken that crap from Stewart. CNBC is not made for long term investors and moms.
In my view, he was saying it’s so important, it shouldn't be treated with such flippancy and incompetence. (Roll the tape of Cramer hyping Bear Stearns and the rest of CNBC pitching trash economics as sage advice.)
In these same models they claim you only have a 1% chance of losing17% in a given year, so how can we be down that much in the first two months of this year and down 30-40% last year? Not broken? There are fixes to all these problems but our industry chooses to ignore these improvements; pure mediocrity.
These financial models work on the law of large numbers, meaning the average of all long-term data. This approach ignores bullish markets that average 17 years and bull markets that average 18.5 years (over 200 years). Therefore, the buy & hold only works in bull markets or for investors that can withstand being invested 38 years (on average).
More disturbing, the founders of most of these models agree these models are flawed and need to be improved; including William Sharpe, Benoit Mandelbrot, and Eugene Fama. The industry’s academics and investment firms choose to ignore the need for improvements.
As for Cramer, he is the Jerry Springer of the industry. Instead of educating the public he runs a 3 ring circus of financial reality TV. I’m embarrassed by my profession and the dummying down of America.
Thanks to Seeking Alpha for offering this kind of public forum.
One might buy a house because a broker claimed "it's a great house for the long haul" - but one wouldn't leave the house sitting there for 20 years and do nothing, hoping it will appreciate in value over that time (nor would one blame the broker 20 years later if his claim turned out to be false). Yet folks buy companies that way all the time - never bothering over minutiae like financials, annual reports, conference calls, or even voting.
'Investors' often look down on day-traders as speculators, but they miss the obvious: it isn't the length of time one holds an asset that transforms it from speculative gambling to an investment - it is what one does while one holds it.
If one can't be bothered to find out who and what you're buying (a few hours a year per company), then one should stick with funds, and stop pretending to be an investor, whether for long haul or short.
"Job of the financial media" ? Anyone who relies on media to make decisions is looking at the past, not the future. The BEST you can hope journalists to do is get the past right, and even that's not often the case. First, ever read a newspaper or magazine on a topic in which you are fairly expert ? Notice they usually make many mistakes ? Second, should you be surprised ? Those who can't do, write about doing...
On Mar 19 01:41 PM Bluenose wrote:
> While I completely agree with the time honored long term investing
> mantra, I have a contrary view of your critique of Stewart's show.
>
>
> The great ideal of long term investing is based on the integrity
> of financial professionals and them making decisions that enhance
> long term shareholder value. I think the job of the financial media
> "experts", and any journalist for that matter, is to act as a watchdog
> over the financial industry. When the corporate executives make short
> term decisions with the goal of enhancing their financial gain and
> the media supports them to gain access and enhance their short term
> ratings, investing for the long term becomes a losing proposition.
> Not unlike gambling in Vegas, the house wins and you lose.
>
> I think, that John Stewart was absolute correct to tie in long term
> investing in his critique. I feel that only by holding corporate
> executive's and the media's feet to the fire can we regain confidence
> in the value of long term investing.
Checkout her credentials : "Carmen received her bachelor's degree in psychology and art history from Fairfield University and her master's in psychology " and she writes "the money column for Glamour" per Wiki. The people that actually take Kramer or Ulrich seriously do not read Seeking Alpha, probably do not know what "Alpha" means.