Investment Pornography


As investors, we are constantly bombarded with “entertainment disguised as investment advice”. We see it and hear it, in what we believe to be, credible sources (i.e. magazine covers; newspaper headlines; financial TV channels; etc.).

But what is Investment Pornography? I originally heard the term at a Dimensional Fund Advisors investment symposium. Simply put, Investment Pornography refers to the tendency of mass media to excite its readers/listeners about short-term fluctuations in the market. Also, eluding to the fact that if an event is not acted/or acted upon, it can have a negative impact on your long-term financial well-being.

In a presentation called, “The Big Tease: How the Financial Press Tickles Our Prurient Financial Interest”, Weston Wellington, a vice-president at Dimensional Fund Advisors, refers specifically to successive annual issues of Smart Money magazine from 1996 – 1998. In each of those years, the magazines include a story about the “7 best mutual funds”. If investors ran out and invested in each of the 7 funds in 1996, then he/she would have lost 6.7% that year. In 1997, the magazine listed 7 different funds, as the best, and if investors followed the “advice”, they would have been down 3.4%. In 1998, the magazine only listed 6 best mutual funds to own, and at the end of the year a portfolio of those funds would have been down 2.2%.

More recent magazine articles that aim to influence investor sentiment are: “Buy-and-hold is dead and gone”, Forbes July 2, 2010; ‘What Recovery?”, Time June 20, 2011; “401(k) letting you down? Try a foreclosed home”, Bloomberg Businessweek November 8, 2012.

Keep in mind, these sources do not have any clue about an investor’s personal financial situation. The media’s role is to sell papers/magazines or increase viewership…the more perverse the headline, the greater the call to action.

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