Re: 2/19/03 - CBS Marketwatch: Who's giving you financial advice? Your neighbor? Cabbie? A model on the Internet?
CHUCK JAFFE
Who's giving you financial advice?
Your neighbor? Cabbie? A model on the Internet?
By Chuck Jaffe, CBS MarketWatch.com
Last Update: 12:02 AM ET Feb. 19, 2003
BOSTON (CBS.MW) -- Moet is a model, an aspiring actress and movie-maker and an Internet entrepreneur.
At her Web site, moet.net, she eyes you coyly while clad in a bikini and astride a horse, or gives you a come-hither glance while firmly grasping a wooden railing.
So if you go to her site and say you're looking to see her "market tips," chances are you're really just seeking a clever ruse to throw off a spouse or a boss who wonders what it is that you're looking at.
And yet Moet does indeed offer stock tips. Those tips are worth looking at, not for the cheap-yet-unavoidable thrill of seeing Moet's pictures but for what her stock tips represent to the supposedly older and wiser investors who are struggling to get through the bear market.
Moet's stock selections come from a friend of hers, someone she nicknamed "Wallstreetio," who she described in an interview last week as "a recluse and savant ... a genius when it comes to the markets." His stock picks beat the market last year, she said, although they still were down by 16 percent.
And Moet herself is an avid investor (her current favorite is Crown Cork and Seal (CCK: news, chart, profile), even though it's not on Wallstreetio's list), who can talk genuinely and earnestly about a company's growth potential and tell you why you should expect certain issues to benefit from the Bush tax plan.
It sounds laughable. A supermodel wannabe picking stocks with some unnamed market-topping hermit whose track record is impossible to verify.
And yet just three years ago, instead of laughing at the absurdity of the situation, a lot of investors would have been saying "Ooh, she likes Cisco Systems," and using her picks to further justify their own investment selections.
That's not as absurd as it sounds. Entire Web sites survived on chat rooms filled with stock jockeys just a few years ago. In 1999, you could go to a business lunch and get stock tips from everyone you met, starting with the cabbie and including the waiter, not to mention your dining partner.
The bear market ended all that. The stock tip -- outside of chat rooms, investment newsletters, talk radio and money television -- seems to have become something of an endangered species.
It's not that tips went away entirely, but they changed. For starters, much of the common advice became geared toward safety, like the woman at my table on the commuter boat last week who volunteered that she stopped throwing her money into the market once she knew she could lock in a gain of just above 2 percent in a savings account. Her strong suggestion was to ride out the downturn on the sidelines, advice that sounded good to at least one of our fellow travelers.
On the surface, that's a lot different than the "We think MO could double" kind of advice Moet is dispensing.
At the same time, it has equal potential to do harm.
Even if the bearish woman on the boat has some ability to discern just the right time to plow into stocks again, the person pondering her advice may have no clue of when the market will have bottomed. She might stay on the sidelines indefinitely, until something convinces her the time is right again.
"I don't think most people would take advice from a young model on a Web site," says Richard Geist, editor of the Strategic Investing newsletter and head of the Congress on the Psychology of Investing. "But they're still taking advice from someone they meet at a cocktail party, or someone they know who sounds smart.
"It's easy to sort out advice that comes from an outrageous source, but much harder to discern who really knows something when you're getting that advice from people who look like you and who sound like they have figured it out while you are still struggling to make sense of things."
With that in mind, most experts suggest that any sort of off-handed investment advice be treated with caution, as nothing more than a jumping-off point to further research.
"When you get a tip, start by getting to know what you can about the person giving it to you," says Marc Beauchamp, executive director of the North American Securities Administrators Association. "You want to know about their track record, about their experience, about what they did to come up with their recommendation, and then you want to make sure that what they are saying really applies to someone in your situation."
Beauchamp noted that many of the investment scams occurring today use fear as part of the sales pitch, much more than the greedy make-as-much-as-you-can spiels of the 1990s. The fact that the security is being talked about, rather than go-go returns doesn't lessen the homework an investor should do before proceeding.
"I think it's pretty obvious that you don't just see a pretty face, have her offer you stock tips and go out and buy things," says Beauchamp. "But when you don't have that obvious feeling that something might not be right, that doesn't mean you can put your guard down. ... When it comes to the tips people get today, investors need to remember they can lose just as much money trying to be safe as they can trying to find tomorrow's big winner."
Chuck Jaffe writes about mutual funds for CBS MarketWatch and dozens of newspapers throughout the United States.
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