But the greatest disadvantage of using these large investment firms is they never go to cash in anticipation of a market crash. They can’t, because it’s equivalent to dialing down their profits. It is calendar year earnings that are the most important focus of these large firms, not your long term investment performance. Instead they tell their clients, “You can’t time the market.” These firms don’t even share the same institutional research with their retail advisors that they share with their institutional clients. They have a whole other set of worthless research. And that’s by design as well. First, the retail advisor base will have difficulty understanding the institutional research, and second, you can’t have everyone getting out of the market at the same time. These are big firms with trillions of dollars under management. It’s more profitable for them to treat their more valuable untrusting clients better and use the less valuable trusting clients as a source of liquidity for when the valuable clients want to get out.
Ignore most of what’s on CNBC, Bloomberg and other media business programs. On these shows, the “Chief Global Equity Strategist” from Merrill or Morgan is really a highly paid sales person, and he is there to market the firm and enhance the firms trading positions. There’s also more than one “Chief” at these firms—there’s too many venues and TV show for just one “Chief”. Never take their free advice, it’s really not free. Understand they are given access to the program’s audience because they spend enormous amount of money on advertising. This access to the millions who watch these programs enable them to drum up interest in specific securities that they want to unload at better prices. Also, the program format is remarkably similar to sports news, it is entertainment. The format focuses too much attention on the recent past and the short term. What’s hot and what’s not, rather than well thought out long term strategies based on fundamentals and valuation—that’s boring and alienates advertisers who want to drive the investment themes themselves. Also, ignore Jim Cramer. A recent independent study of his advice has him wrong 54% of the time.