What Wall Street Thinks about YOU!

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Commercials tell us a lot about what a company thinks about their customers.  They are obviously constructed to appeal to their customer base.  For that reason, I pay attention to the financial services commercials I see on the television.  There is one particular set of commercials from a well knows financial services company that I have seen quite a bit lately.  What does it tell us about how they think about you?

Some Context on WHAT the Financial Services Knows

Much behavioral research has been done on how folks invest.  Most of this research has been paid for by the large financial services companies.  What it demonstrates is that most people invest in mutual funds inside a 401K/IRA wrapper.  These folks get average returns that are 3-4% less than the actual mutual fund they invest in.  Why?  Because they buy high and sell low.  That is, when the market goes down, people tend to panic and sell.  But when the market is going great, folks buy.  So after the 2008 market bloodbath, outputs were increasing dramatically from equity mutual funds.  Last year, and the beginning of 2013, we see folks starting to buy more and more into equity mutual funds.

But that is not all.  People tend to need their money captured in a 401K when the market is going down because that is when companies are laying off people.  So people get into financial trouble due to layoffs and end up selling their mutual funds right in the middle of a bear market.

There is more.  People are followers and they also hate to be left out of a good thing.  So when the market is in a bubble, what do people do?  They beg, borrow and steal to put money into the market.  They take more risk than they should to get into the bubble market.

Everyone Thinks they can AVOID these Structural Issues

Let’s be honest, we all think we are smart and make our decisions based on rational thought.  But, that is not true [at least the rational decision making part].  Research in how the brain functions has demonstrated that all decisions are emotion based, and the more uncertainty there is in a decision, the more the emotional centers of our brain take over.  So it is easy to see that the issues that cause the poor performance for individuals are structural, hard wired into our brains and the way the economy works.

Now let’s look at that Commercial

The commercials show us a middle age person or couple in a neat, nicely appointed home.  They are all smiles and it is clear they have a nice family and nice home.  We hear a strong male voice talking about getting back into the market.  He indicates that the company has “experts” to talk to, not salesmen or women.  He insists all you need to do is “talk” to someone to gain that confidence to get back in the market.  And here is the kicker, if you call and talk to this company you will have a “storybook ending.”  What are they selling?  You guessed it, the same mutual funds that they were selling prior to 2008.  Some strategy, different day.

What this Company Thinks about YOU

They know the issues with the strategy they are advising are structural.  They know that people left the market when the S&P 500 index was down into the 800s.  Now they want you to enter the market when the S&P is over 1500?  So what they are advising is to sell low and buy high again.  They must think you are STUPID.

Hopefully you can stand up and say, like The Who, “I Won’t Be Fooled Again.”

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Thoughts?

Photo: gbaku

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3 Comments

  1. I think we as a society seek to be average. Wise advice is to live on a budget, review your financial situation at least quarterly, live on less than you make and invest wisely with your long term goals in mind. I just read an article this morning that said that living on a budget is bad advice. They said this is because it is too hard for most people to do. I find this crazy, why encourage laziness and average results. To be financial successful at least compared to the “average” in the US, I believe is quite easy just because average is really a low bar. No matter what people do and become successful at it is because of time and effort. The biggest sports guru at the office didn’t just have that happen, no they spend lots of time studying the scores, stats, and analysis of the sport. Same with successful real estate investors or stock investors. It takes time and effort.

    Yes doing a little is much better than nothing but some actions must take place in order to achieve results. I used to want to be a big stock market investor, day trade a bit and all that. I put a decent amount of time in and slowly realized I couldn’t keep up. I stayed with real estate. My stock investments are now nearly all through my retirement accounts. I use dollar cost averaging and put in a steady amount week in and week out. I review my holding a 4-5 times a year and since starting my working career 7 -8 years ago have achieved and 8% annual return. I’m happy and it works for me.

  2. Kind of reminds me of all the REI guru’s. Now is the time to buy RE, like anything has really changed. The entire economy is has been created by the Federal Reserve, a huge bubble is forming around low interest rates and artificially low interest rates. All markets are being driven up from these government and banking actions.

    Fortunes will be created, but in the end once again the bubble will burst and there will be a massive transfer of wealth to the smart money.

    Now how many here think Mr. Bernanke is setting this up for you the little guy?

    So yes the financial service crowd in the Stock Market and the lenders in the REI market in lock step with their paid for media are lining us all up for profit taking.

    The lenders on this forum know the real money in REI is in lending and selling. Buy and hold is the least liquid, carries the most risk and is the hardest way to make a living in both REI and the Stock Market.

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