Who Can You Really Trust For Investment Information?

Jul 11th, 2007 | Filed under: Industry

When making your investment decisions, do you oftentimes feel like you are all alone?

Well, this isn’t going to make you feel much better. Three stories came out all in the last week that highlight the fundamental problem with basing investment decisions on common sources of "trusted" information - they are not trustworthy because they are not transparent.

If you read popular investing magazines to get mutual fund tips, or follow online investment chat boards to get new ideas, or trust a financial advisor to make personalized recommendations that you think are in your best interests, you could be in trouble.

I am not trying to be provocative or self-serving so that everyone in the world stops buying Money and starts using Cake (although that certainly would be nice). But it is worth noting in the context of how we are approaching things differently at Cake.

First, is a study written by professors Jonathan Reuter and Eric Zitzewitz who tracked the performance of mutual funds touted by various financial magazines over a 5 year period. They found that the recommended funds didn’t even perform as well as the average mutual funds. “Investors would do just as well picking funds at random.” Huh?

Second is the revelation that the CEO of Whole Foods used an alias to write unflattering posts about his rival CEO of Wild Oats on the Yahoo Finance bulletin board…for 7 years! Oh, did I mention that while he was doing this he was also trying to buy the company? I expect better behavior from the man that can get away with selling sea scallops for $20/lb.

Last is the front page story in last Sunday’s New York Times, detailing how some “financial advisors” are targeting “aging boomers” to sell them investment products
they don’t need. Or worse, puts them in financial ruin. Coupled with the fact that this 73 year-old widow is also the sole care-giver to her son with Down’s Syndrome pretty much solidifies this man’s case to be the lead on the next season of Surreal Life- Abu Graib.

The take-away: Current sources of investment “advice” are far from sufficient. Try Cake and let us know if you think it is helpful. You don’t need to feel like you are all alone.