Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, August 14, 1995 TAG: 9508140015
SECTION: BUSINESS PAGE: A8 EDITION: METRO
SOURCE: By JANE BRYANT QUINN WASHINGTON POST WRITERS GROUP
DATELINE: NEW YORK LENGTH: Medium
Personal-finance magazines are purveying what I call investment porn: stories with headlines like TEN FUNDS SURE TO GO UP! SAFE WAYS TO MAKE 10 PERCENT! DIAL HOT-STOX!
We're getting these stories because we love them. They tickle our prurient financial interest. But they present a false picture of what good investing is about.
Sometimes the porn is mainly the headline - as in the latest Money magazine, tabloid-headed THE NEW WAY TO MAKE MONEY IN FUNDS TODAY. What's ``new'' turns out to be the familiar index funds (which follow the stock market as a whole) spiced up with some sexier funds on the side. Those side funds are touted as ``market beaters,'' although who can be sure? Maybe they will be, maybe not.
``What's a headline?'' shrugs Money Managing Editor Frank Lalli. ``It's a shouted message down a crowded bar.'' The porn test isn't the headline, Lalli argues, but whether the story is anchored in reality.
Even by this test, the anchor isn't holding firm. Personal-finance publications are crowding the field - Smart Money, Worth, new weekly newspaper sections. Kiplinger's venerable Changing Times reinvented itself as Kiplinger's Personal Finance Magazine. In this tough and competitive market, publications that merely dispense information will see their readership melt away. Investors want action and timely advice. Even if they're not buying stocks right now, they want to peep.
So journalists are increasingly making specific investment recommendations. Instead of ``analyst Bigdome picks the following stocks,'' it's ``Money magazine picks'' or ``Smart Money picks.'' Instead of listing the latest performance of mutual funds, some magazines rate them with ``up'' and ``down'' arrows or letter grades. The grades merely highlight past performance, adjusted for risk or market conditions. But readers generally use them as investment guides. There may even be a ``best buy'' list.
How good are the journalists' picks? Smart Money's current cover crows the 10 stocks picked by writer James Stewart in 1992 have risen an average of 150 percent. Lalli boasts Money's chief investment strategist, Michael Sivy, ``has called market turns with remarkable accuracy.'' But no systematic work has been done on how readers might fare if they rely on magazines for investment advice.
A couple of small studies, by stockbrokers with an ax to grind, have asked some interesting questions about journalistic research. One, published in a trade magazine called Registered Representative, looked at ratings some magazines gave to mutual funds and concluded they didn't predict how the funds would do. An internal study by the Smith Barney Consulting Group looked at the stock picks in four of Money's forecast stories; in the following year, they underperformed the market average.
These two studies have problems. Money magazine preaches long-term investing, not quick sales after one year; the Registered Rep piece glossed over some serious measurement issues. But the questions they raise deserve to be answered. If journalists join the stock-picking circus, they have to expect their investment recommendations to be tested for results. That's going to be hard on such story staples as DOUBLE YOUR MONEY IN THREE YEARS!
The verdict is already in for viewers who seek quick profits from ``Wall Street Week,'' Louis Rukeyser's popular Friday night broadcast. A study by Norman Fosback, editor of Market Logic in Fort Lauderdale, Fla., found the stocks recommended by Rukeyser's guests tend to rise in the two weeks before the show. They spike up the following Monday - generally the next market day for viewers to buy recommended stocks - hover there for a week and then drop back to the market trend.
I don't do stock tips. My taste runs to index funds, bought and held, and mutual funds in any market that just collapsed. But Newsweek magazine, which I also write for, provides tips the old-fashioned way: by interviewing money managers and letting them tout their favorite stocks.
Smart Money's James Stewart said he'd be ``horrified'' if readers relied on him for stock picks rather than doing their own research. That seems ingenuous. Why else would his prowess be touted on the magazine's cover? So far, I wish I'd invested with him. But everyone's a genius when markets go up.
Personal-financial magazines have a lot of investment smarts. They're wonderful teachers. They provide new ideas and good suggestions for correcting your course. But if you keep hopping to the hot funds they tout each month, you're often buying just when the fund is about to flag. Smart investors set up an automatic investment program, with a limited number of funds, and let it ride.
by CNB