Investors want to maximize profits and minimize losses. However, a three-headed monster has been created to use spin and logic tricks to keep the masses buying and holding while smart money sells or goes short. This monster is none other than the financial “buy, buy, buy” bobble-head known as KudSiegStein (AKA: Larry Kudlow, Jeremy Siegel, and Ben Stein).
KudSiegStein acts in three separate parts, yet mumbles in a singular voice. No matter the details of any individual article, interview, or show episode, the main message is “buy and hold for the long run.” The science and charts behind this message are simple: over the long term, stocks rise; therefore, keep buying no matter what, and time will smooth out everything in your favor. The more rigorous web surfer can find an amazon forest’s worth of literature proving why this investing philosophy does not maximize profits, but I simply want to point out some major reasons why you should ignore these ignoramuses.
First, KudSiegStein is never accountable for anything because its time horizon is forever. If you lose money in the market, you simply didn’t live long enough to see your stocks come back. If you are a real person living in the real world, this reasoning has no practical value.
For example, let’s look at the Nasdaq 100 index ETF (QQQQ). According to KudSiegStein’s strategy, you should have bought the QQQQ like clockwork every month, quarter, or year when you took your paycheck surplus and invested.
Let’s say you graduated college in 1999 and bought $10,000 at the beginning of every year starting in 2000 at 90. Then you invested $10,000 in 2001 at 60, $10,000 in 2002 at 40, $10,000 in 2003 at 25, $10,000 in 2004 at 38, $10,000 in 2005 at 40, $10,000 in 2006 at 40, $10,000 in 2007 at 42, and $10,000 in 2008 at 50. Today you would have a cost basis of 47.2 and the QQQQ closed Monday at 48.18. That’s a 2% gain over seven years!! Other indexes may have fared better, but return on investment [ROI] depends on when and in what you invest, not on a one-size-fits-all buy and hold approach.
Second, KudSiegStein prides itself on being a red-blooded, patriotic free market capitalist, yet hypocritically begs for Federal Reserve and government stimulus. If someone has a major inconsistency in his or her guiding framework, find a new mentor. The internet has birthed an indie movement in finance for realists, so do not feel forced to swallow KudSiegStein’s manure in the mainstream media.
Third, KudSiegStein helps its elitist finance friends sell their bags to the masses when the business cycle slows or contracts. If KudSiegStein told you to sell when the smart money sold, then the market would fall much faster and KudSiegStein’s friends would lose more money than if you bought their bags on the way down. Moreover, retail brokers and finance media such as Charles Schwab (NYSE:SCHW) and CNBC (NYSE:GE) do much better in bull markets, so they want finance journalists pushing stocks as much as possible. Also, like all media, the finance media is tainted by press releases and publicists. Thus, KudSiegStein & Co. are not the objective market scientists they hold themselves out to be.
Fourth, KudSiegStein is comprised of a journalist (Kudlow), an academic (Siegel), and a game show host (Stein)! Kudlow is bullish because being bearish doesn’t get ratings, Siegel is pushing his ETF (Wisdom Tree Investments) and books, and Stein is making money in books and journalism too. Consequently, KudSiegStein has the tendency to get lost in theory, err in application, and be heavily biased on the bullish side. And as for the game show host, isn’t he inclined to treat your investments like a big game?
Last, but possibly most important, KudSiegStein has denied the housing crisis the entire way down. Only as of very recently has the permabull monster admitted issues with housing. I am not sure when interest-only “no doc” loans seemed sustainable to KudSiegStein, but such hogwash thinking discounts anything further it says about the economy or any asset market. In short, KudSiegStein’s lack of common sense has lost a lot of people a lot of money.
KudSiegStein is not completely flawed. Sometimes it has a few reasonable things to say. But don’t let its moments of reason fool you into blindly following this new age mass media monster. Otherwise you too will be a victim of the Bagholder Bulls.