Archives for January 2010

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New Posting Schedule

For the last several months, the posting schedule on this blog has been:

  • Post each day Monday-Thursday
  • Roundup Friday

Starting this week, I’ll be trying something new: The total number of posts I write will be the same, but two of them will be offered to other blogs as guest posts. The end result will be this schedule:

  • Post Monday
  • Post Wednesday
  • Roundup Friday

In each week’s roundup post, I’ll link to the guest posts that were published at other blogs. This will average out to 2 per week, but guest posts frequently aren’t published immediately upon submission, so many weeks may include 1 or 3.

Spreading (mis)Information

Everybody in the personal finance industry (myself included) has a business interest in getting you to believe one thing or another.

  • Mutual fund companies have a vested interest in convincing you that mutual funds in general (and their funds specifically) can beat the market.
  • Discount brokerage firms have an interest in convincing you that it’s profitable to pick stocks and trade them frequently.
  • Major financial magazines receive their advertising revenue from fund companies and brokerage firms, so they need to cater to the interests of those two groups.

So who can we turn to for unbiased information?

Professors and Academics

In contrast to the parties mentioned above, the academic community’s primary interest is simply in making new, verifiable findings and getting them published in reputable trade journals.

This is terrific. It makes them (mostly) unbiased.

The flip side: They have little to gain from making their work accessible to the public. So, for the most part, they don’t. Their work is intended to be read by people who know the meaning of terms like kurtosis, autocorrelation, and mean-variance analysis.

This is almost the precise opposite of the financial services industry, which is all too happy to spread easy-to-understand, profit-generating, though factually dubious ideas. (“Index funds only earn average returns. You’re not just average, are you?”)

Evaluating Information

If you’re the type who doesn’t mind technical jargon, I’d suggest spending some time on the Social Science Resource Network. You’ll find studies there on everything from the performance of investment newsletters, to persistence of mutual fund performance, to sorting out luck vs. skill in mutual fund returns.

If, however, you don’t particularly relish the idea of reading academic papers, I suggest the following plan of action:

  1. Assume that the primary goal of everybody in the financial services industry is to take your money. (Yes, that includes the financial advisor you know from Church as well as the one who coaches your daughter’s softball team.)
  2. Determine how that goal influences the information they’re providing you.

Is it bordering on paranoid? Yes. Will it be untrue in many cases? Of course. But it’s a heck of a lot closer to reality than, “Assume that everybody has your best interests in mind.”

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