A Heap of Wealth-Destroying Stupidity

 | Jun 17, 2014 | 3:00 PM EDT
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Each day, I spend a lot of time reading. I still read at least two actual paper newspapers every day, and of course I surf all over the Interwebs looking for new and useful information. I sign up for all sorts of investing- and news-oriented email services, as well. Of course, I get a lot of advertising as a result of all this, and I find that I end up scanning some unbelievably stupid stuff during the course of the day. Some of it is just misguided, but much of it can be downright disastrous for your investment performance.

In the past two weeks, I have seen an increase in World Cup-related stock pitches. Now, if you want to, as I did last week, you can use the World Cup theme as a way to highlight global stocks that could do well in the future. If you are discussing the economic and potential market impact of the Cup on the host country, that's valid speculation, in my opinion. But the flood I have seen of "buy these stocks now because of their association, however fleeting, with World Cup" pitches is a prescription for monetary pain.

Coca-Cola (KO) is not going to see a major influx of new business because they are a sponsor of World Cup. People will not choose Visa (V) over MasterCard (MA) because it has sponsored the Cup. People who like Anheuser-Busch (BUD) beer and McDonald's (MCD) food will consume those products as they've done before. Those who don't will not switch because of these corporate decisions to sponsor the World Cup.

Unfortunately, however, we see this type of investor hype around every major event. We hear word on stocks that stand to benefit from the Super Bowl, on stocks that will get a lift from the Daytona 500 and on everything in between. As investors we need to understand that this is not real investment advice. Odds are that it was written by an intern using a search-engine-optimization manual to generate hits and sell advertising. If one of these "buy now before the big game" advertisements ever start to make sense to you, please go sit in a corner and read The Intelligent Investor until the feeling passes.

We know from numerous studies that individual investors tend to underperform the market rather badly, and we also know that the two major reasons for this are overtrading and chasing hot stock stories. Don't fall into these traps by picking up stocks because you read somewhere that they'll go higher as a result of some sporting event or, perhaps, due to the State of the Union address. These articles are not going to make you money.

In fact, I do not believe the people that write these articles actually invest any money at all. If they knew anything about the financial markets at all, they would never print such ridiculous advice. They are writing in order to sell ads, not to make you money. I went back through the last week or so of Real Money posts and saw none of this foolishness. Everyone here has skin in the game, and everyone here knows how ridiculous it would be to buy stocks based on such ridiculous assumptions.

So, rather than respond to these types of advertising (disguised as investment advice pitches), investors should focus on adopting an investment philosophy that fits their personality, lifestyle and skill set. The academics have studied this up, down and sideways -- and it is pretty clear that two approaches in particular offer the best opportunity for market-beating, long-term performance. One is a focus on price-and-earnings momentum, and the other is engagement in deep-value investing.

These two approaches are very different from one another, and each has it pluses and minuses -- although, really, as a deep-value guy, I don't see to many minuses with this approach. But you need to decide which one fits you best. Over time, having a philosophy and definitive approach to the market will make you a more successful investor. Buying stock in companies that bought ads at the big game will not.

I looked back over some of my recent purchases, and none of them are affiliated with the World Cup. I bought shares of Hercules Offshore (HERO), Home Trust Bancshares (HTBI) and Preferred Apartments (APTS) because these stocks are safe and cheap. I talked with a leading momentum guy last night, and he shared with me that he had no clue as to whether any of his stocks had an association with the World Cup. He bought them because his models showed earnings acceleration, and the companies were posting positive earnings surprises.

Over the course of the day, you are bound to hear many foolish stock pitches on the Internet and on television. Have a defined approach that fits your needs and skills in order to help you resist this wealth-destroying stupidity.



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