BULLS & BEARS: What's seen as wisdom is financial pornography

June 13, 2005

In 1995, Jane Bryant Quinn wrote an article in Newsweek titled "The Big Tease" and used the term "financial pornography" to describe magazine headlines we have all seen.

Headlines like:

"Ten Mutual Funds to Buy Now"

"Surefire Oil Stocks"

"Five Stocks to Own for Your LIFE" "How to Profit from $100 Oil" One of the definitions of pornography in Webster's is "the depiction of acts in a sensational manner so as to arouse a quick intense emotional reaction." Replace the word "acts" with "investment information," and you get a good definition of financial or investment pornography.

This soft-core porn is everywhere: magazines, TV, e-mails, Web sites and, soon, instant messages to your cell phone. That is reason enough to put your cell phone number on the national do-not-call list.

What many of us forget is that all these diverse media vying for your eyes aren't trying to offer you advice, nor are they trying to influence you into making a rational financial decision. They are selling advertising.

The only reason financial magazines, Web sites and the CNBCs of the world exist is to earn revenue from ad sales. Ad revenue is a direct result of ratings (replace ratings with circulation if you want) and ratings are boosted by sensationalism.

If you want to see an example of extreme, hard-core, financial sensationalism that elicits an intense emotional reaction, just watch 15 minutes of "Mad Money" with James Cramer tonight on CNBC. Just talking about stocks makes the guy sweat, pace, scream and just about blow a heart valve on every show.

Sometimes from this entertainment you will glean a useful tidbit that could provoke you into further research. That's good. Research it and then decide what to do.

Unfortunately, though, instead of prompting research, this smut sometimes influences an investor into a snap decision or makes him second-guess his current holdings.

I'd bet if you only bought the stocks of companies when the CEO was on CNBC crowing about how great his or her business was going, you would have some pretty pitiful returns to show for it.

Lately, the CEOs of homebuilding companies have been interviewed a lot. Business is fantastic. But in the last two years, these stocks have already gone up threefold; since 9/11, they are up six- or eightfold. I can't imagine the next few years will be as kind to current investors.

My belief is, when a CEO is in your face extolling the virtues of his company and bragging about how great business is, it's time to grab the clicker and shut off the porn.

Instead, do what you are doing right now ... some good, wholesome reading.

Dave Gilreath is co-owner of Indianapolis-based Sheaff Brock Investment Advisors, money management firm. Views expressed are his own. He can be reached at 705-5700 or daveg@sheaffbrock.com.
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