A Good Example Why You Shouldn't Put Too Much Stock Into Investing Newsletters

A Good Example Why You Shouldn't Put Too Much Stock Into Investing Newsletters

I was at my local bank the other day and picked up a copy of their quarterly investment newsletter to see what they had to say. The latest was the “Summer” issue which comes out sometime in May. The newsletters usually some decent information regarding latest tax laws and portfolio diversification reminders, but at the end they always throw in some recent market commentary and economic outlook.

The title was April Brings Increase in Investor Optimism. Of course, that seems fitting considering that the market has just come off a tremendous rally following that sharp drop in February. So by looking at the past quarter, yes it looks like investors were quite optimistic. But what what did the newsletter say about the outlook? For starters, they state:

Investors may have some reason to be relieved. First, the concern about the spillover of the sub-prime mortgage market–one of the catalysts to the late February correction–appears to have been overstated.

Really, it has been overstated? I know it is impossible to predict the future, but to allow a few months of strong performance allow you to come to the conclusion that the sub-prime mortgage issue is overstated is a bit premature. The newsletter then goes on to say:

While the sub-prime woes are expected to have an economic impact through more restrictive credit standards and adding foreclosed homes to an already bulging inventory, the risks of a financial contagion triggered by the failure of lending organizations appears to have subsided.

Again, the newsletter states that the sub-prime lending should remain contained within the credit market, yet this proved to not be the case. The last few months have shown that this has impacted almost all sectors and markets both locally and abroad. This is again a very optimistic view made on the basis of a good three month rally prior to this going to print.

Take Advice Like This With a Grain of Salt

It doesn’t matter how large of a firm you are, how much research you’ve done, or what your track record is; it is virtually impossible to predict the future. Yes, hindsight is always 20/20, so it is easy to look back and point out everything that was wrong with the information, but that also just goes to show how easy it is to be incorrect.

Also, keep in mind that most of these newsletters, and even many media outlets are going to always put a positive spin whenever they can. They are in the business of selling investments or making money in some way through investments. If they come out with a bad outlook and scare people into pulling out of the markets, they are directly losing money. So, you’ll almost never see truly bad news come out of publications such as these.

Finally, this simply illustrates the importance of becoming educated enough where you can make your own decisions while filtering out the noise. By using some sound fundamental financial principles, a properly asset allocated portfolio, and some time, you’ll have no reason to even care what others are saying about the market.

Author: Jeremy Vohwinkle

My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.

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