Consumer alert – most financial gurus and financial advice authors exaggerate the returns they can produce, don’t do well on their own portfolios, and many have declared bankruptcy and/or been fined by the SEC for fraud. This includes famous names you have probably heard of.
Most of the following is from Eric Tyson’s book, Investing for Dummies…
- Charles Givens has recommended investing in limited partnerships, including one on which he was a major shareholder that declined to half it value. (Tyson says LP’s are a very poor investment). Givens was endorsed by the Today show. He also claimed that investors could expect to earn up to 30% with discounted mortgages.
- Elaine Garzarelli predicted the stock crash of 1987. For the next 3 years her fund was the worst performing of all growth funds. Her performance was so bad that the company she was working for fired her. Now she hawks newsletters making false claims.
- Forbes and the San Francisco Chronicle did studies that determined that Suze Orman exaggerated the number of clients she has; and in some cases receives fees from companies that she recommends (a conflict of interest).
- Money magazine has recommended limited partnerships (Tyson says…a very poor investment).
- Many radio and TV programs, even nationwide ones will hire salespeople who are fishing for new customers, but have little useful and sometimes even wrong advice. They get hired because they will do the shows cheap or for free.
- Bob Bunker has a radio talk show and advocates market timing. His portfolio has not done as well as the overall market.
- Steven Leeb exaggerated returns his investors could get. He was charged by the SEC with false advertising.
- Followers of advice by newsletter editor Joe Granville have lost 99% of their investments.
- Wade Cook has claimed their folks following his methods could earn 20% per month (240% per year). He made more than $100 million selling his books and seminars. He advocated day trading and technical analysis (Tyson says these are bad stuff). Cook sold securities without a license, declared bankruptcy, was fined by the SEC, and lied about claims of 300% per annum.
- The Beardstown ladies claimed exaggerated returns of 23%. Actual returns proved to be 9%. Their publisher has successfully sued them for their false information.
- Mark Seo, author, claimed 34% returns, also false.
- The Motley Fools (David and Tom Gardner) have exaggerated claims and recommended short selling, which has not done well for them. Hulbert Financial Digest does not rate their newsletter as one of the leading ones.
- Robert Kiyosaki, author of Rich Dad, Poor Dad, is biased against mutual funds and presents arguments that other competent folks have refuted to support his views.
- Seminars, promoters and authors are not regulated by the SEC.
- Types of investments that should be avoided and why…
- Variable annuities – they are taxed as ordinary income and have high fees.
- Real estate– not diversified and values are declining.
- Options – too risky.
- Whole life insurance – high commissions and sales charges. Instead, buy term insurance and invest elsewhere.
- Limited partnership investments – high fees, poor performance.
- “Managed” mutual funds – 75% of mutual fund managers fail to beat the market, per Standard and Poors.
- Certified Financial Planners (CFPs):
- Can pick anyone to be a proctor at their exams.
- Can retake the exam and memorize the questions they missed.
- Can listen to or read most anything to meet the continuing education requirements.
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