Color of Money: 'Good Advice from Bad People' and the Financial Tips 'they' Give

By Michelle Singletary


Who are "they"?

That's the question I often ask people when they want my opinion about some financial advice(https://www.facebook.com/rbcwoo) they've heard. Here are some of the things "they" say:

● Getting student loans is a good thing because it's an investment in your future.

● Now's the time to get a home because interest rates are low.

● Never pay off your mortgage, or you should keep a mortgage for the tax break.

● It's better to pay off the debt by borrowing from your 401(k) retirement savings account because you will be paying yourself back.

My question about who "they" are often solicits chuckles because people realize that in their effort to help themselves, they've picked up pieces of advice from biased individuals or without doing the work to figure out if it's prudent.

Millions of consumers have been duped by people - many once touted as icons - who turn out to be charlatans or who gave advice that they themselves didn't follow, says Zac Bissonnette, a personal finance writer.

Time and again, we learn that self-help authors have become wealthy not by following their own advice but by selling the concept of a certain life or financial enriching strategy. We're reminded that politicians, corporate and religious leaders, entrepreneurs, sports figures and relationship experts are not practicing what they preach.

It's these folks that Bissonnette criticizes in "Good Advice From Bad People: Selected Wisdom from Murderers, Stock Swindlers, and Lance Armstrong" (Portfolio/Penguin, $15) (https://foursquare.com/v/rbc-woo/5354b78a498ea719f1127003). It's my pick for this month's Color of Money Book Club. The murderers include cult leader Jim Jones and Gary Shawkey, who was given a life sentence for killing a 71-year-old investor he bilked out of $1.2 million. Shawkey's self-published book was titled "If I Can . . . Anybody Can . . . "

I couldn't stop shaking my head as Bissonnette took me down memory lane, starting with the financial arena.

Remember the Beardstown Ladies?

They were part of an investment group from Beardstown, Ill., who wrote the bestselling "The Beardstown Ladies' Common-Sense Investment Guide: How We Beat the Stock Market and How You Can Too."

Along with some recipes for stew and chicken, we were told that from 1984 to 1993, the ladies had an average annual investment return of 23.4 percent. Their book sold almost 800,000 copies.

But some number-crunching from journalists and an eventual audit found the ladies hadn't beaten the market or most money professionals. Their actual return during the time period had been 9.1 percent, compared with the 15.7 percent average annual return on the Dow Jones industrial average.

The women said it was a miscalculation. Their publishing company was sued. There was a settlement and now we have a good lesson about the importance of vetting people's investment claims. While you can learn a lot in an investment club, "the ladies would probably be better off if they'd just put their money in time-proven mutual funds," Bissonnette writes.

In the not-so-distant past, we had the falling of another "they" in Bernie Madoff. The once-prominent member of the securities industry and former chairman of Nasdaq is serving a 150-year prison term for bilking investors out of billions.

"And yet, when he actually took a moment to give personal finance advice after his fall from grace, he provided wisdom that everyone should follow: low-cost index mutual funds are the best option for most investors," Bissonnette writes.

Bissonnette also introduces Angelo Mozilo, the former chief executive of Countrywide Financial. Although the company was approving risky home mortgages, in an e-mail that Bissonnette points out, Mozilo wrote that the no-money-down subprime loan is "the most dangerous product in existence and there can be nothing more toxic."

But many borrowers listened to the "they" who said homes would increase in value exponentially so that they could refinance out of the risky loans Mozilo and others were peddling.

Then there is the story of Jesse L. Jackson Jr., the former Democratic congressman from Illinois who is serving prison time for using $750,000 in campaign funds for personal use, including buying Michael Jackson memorabilia.

Bissonnette pulls out this quote from a book Jackson wrote with his father, the Rev. Jesse L. Jackson: "Living above your means is financial sin." Their book was titled "It's About the Money! How You Can Get Out of Debt, Build Wealth, and Achieve Your Financial Dreams."

Says Bissonnette, "All too often, America's smiling, inspirational prophets turn out to be comically - and sometimes darkly - horrible at following their own leads."

I'm sure plenty of people might take issue with some of Bissonnette's selections of "bad people." But his book will at least make you pause before you start a sentence with, "They say."

I'll be hosting a live online discussion about "Good Advice From Bad People" at noon Eastern on May 29 at washingtonpost.com/discussions. Bissonnette will join me. Let's talk about the advice you took that turned out to be bad.


Readers may write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071 or singletarym@washpost.com. Personal responses may not be possible, and comments or questions may be used in a future column, with the writer's name, unless otherwise requested. To read previous Color of Money columns, go to http://wapo.st/michelle-singletary.

Some of the world's most successful hedge fund managers gathered in Manhattan on Monday to share their investing strategies on everything from the U.S. housing market to when to do business with Vladimir Putin.

Many attendees at the 19th Annual Ira Sohn Investor Conference plopped down $4,000 a piece to hear tips from these titans of finance. Here are five top tips you can follow in case you weren't able to swing that ticket price.

1. Einhorn still hates tech stocks
Billionaire David Einhorn isn't backing off from his recent claim that soaring tech stocks are in bubble territory.
The founder of Greenlight Capital sought to illustrate his point by focusing on athenahealth (ATHN), whose shares have skyrocketed 120% since November 2012.

The provider of technology services for medical practices is "caught up in a bubble and could easily" plunge 80% or more from its recent peak, Einhorn said.

The hedge fund giant draw laughter by showing a series of video clips that poked fun at Jonathan Bush, the animated athenahealth CEO and a cousin of former president George W. Bush.

Einhorn said athenahealth's lofty valuation doesn't match up with its disappointing financial results, and he knocked Morgan Stanley for overly optimistic expectations for the stock's performance.

"This is what passes for conservatism during a bubble," Einhorn said, whose call sent athenahealth tumbling 12%.

2. There's money to be made in Russia
While many investors are slashing their exposure to Russia, James Grant believes there's good reason to kick the tires of Gazprom, Russia's state-owned energy behemoth.

In a decidedly contrarian call, the founder of Grant's Interest Rate Observer told the crowd: Gazprom "may or may not be a bad company," but low valuations suggest its "many imperfections seem to be priced in."
Geopolitical concerns have hammered Russian assets, with investors fearing punishing sanctions from the U.S. and an escalation of violence. But Grant quoted from Baron Rothschild, who famously said "the time to buy is when there's blood in the streets."

Grant knocked Gazprom's corporate governance structure, which gives Russia's government control of 50% of the London-listed company.

"There is no more reviled business than Gazprom," Grant said, calling it "Herbalife without Carl Icahn" and suggesting it's the "polar opposite investment" of Tesla Motors (TSLA).

Still, he noted Gazprom is the world's largest gas producer, it owns 17% of global gas reserves and trades at a hefty discount to average analyst price targets.

3. Oil prices are heading South
Surging U.S. oil production should send crude oil prices sharply lower in the coming quarters.
That was the message from Point State Capital's Zach Schreiber, who believes U.S. crude will continue to trade at a sharp discount to global prices.

"U.S. crude oil is being drilled for by the same cast of characters that oversupplied the U.S. natural gas market. We just saw this movie. Why should we expect a different outcome," said Schreiber.

He noted the bullish oil bet has become awfully crowded, with a $33 billion net long position in U.S. crude contracts.
"If you're long, I'm sorry for you. Maybe this makes you comfortable. At least you've got friends," Schreiber said. "Or it could make you feel scared. I'm sure it will be a very smooth exit when all these clowns get out of the Volkswagen."

Schreiber said he's bullish on Valero (VLO) and Marathon Oil (MRO) because refiners should benefit from the wider spreads between U.S. and global crude prices.

4. Housing market bouncing back? Think again
Jeffrey Gundlach believes housing prices are set to tumble to new lows because affordability is a myth, borrowing costs will spook potential home buyers and young people may continue to rent instead of buying.
"This is a generational preference. Young people were shocked and scarred by the housing collapse," said Gundlach, founder of Doubleline Capital.

He pointed to the high percentage of people who moved back in with their parents amid the poor job market and high levels of student debt.

"The kids aren't alright," he said. "There are no first-time buyers. Where are they?"
Related: Housing still a Weak Investment

Gundlach also cited the large amount of homes that have been purchased with cash by investors and other speculative buyers.

"This is not exactly indicative of organic growth in the market from real buyers," said Gundlach.
Gundlach urged investors to short the SPDR S&P Homebuilders exchange-traded fund (XHB), which he believes "looks very tired." He said this ETF should correlate very closely with lumber prices, which have tumbled.

5. Ackman's still likes Fannie and Freddie

Bill Ackman took a break from his campaign against Herbalife (HLF) to make the case for keeping Fannie Mae and Freddie Mac alive despite their enormous crisis-era losses.

Instead of unwinding Fannie and Freddie, Ackman believes it would be far wiser for Congress to reform them. He suggested jacking up required capital ratios, forcing the entities to exit risky businesses and improving corporate governance.

Fannie and Freddie have an "80-year track record, global market acceptance for their paper, a workforce that knows the business and earnings stream that generates capital even in bad times," he said.

Ackman said Fannie and Freddie are conservatively worth $23 and could be valued at as much as $47, compared with just $4 now (these two do trade, but only "over the counter," not on a national stock exchange).

"It's time to get off our fanny," said Ackman, whose hedge fund owns about 10% of Fannie and Freddie's common stock.

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