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Jul 31

Best Investment Advice: Be Careful With The Financial Media

When it comes to making investment decisions, the “talking heads” on television financial shows really don’t know much more than you do if any more than you do.

They do have more immediate ongoing research and information delivery in the background, but much of the time they’re parroting dialogue via their earpiece.

Here is what you really need to know.

The only reliable talking heads were the Talking Heads, an American rock band formed in 1975 in New York City and active until 1991, composed of David Byrne, Chris Frantz, Tina Weymouth, and Jerry Harrison.

Given raw data from a corporate balance sheet, income statement, or more comprehensive 10K, many of the media journalists couldn’t do a good job of evaluating a company. It’s possible the Talking Heads could do as well.

This sounds like I’m knocking the media pundits, but I’m not. They’re doing a job and following a script prepared in producer/director staff meetings. But, I am saying buyer beware when it comes to making stock share purchase decisions based upon anything heard on cable business shows.

A personal case in point involves Annaly Capital (NYSE: NLY). Annaly is a mortgage real estate investment trust – REIT – that owns a portfolio of real estate-related investments in the United States.

Annaly invests in various types of agency mortgage-backed securities and related derivatives to use as an investment hedge. It also invests in residential credit investments, such as credit risk transfer securities and non-agency mortgage-backed securities.

I recall a well-known person on a prominent cable financial show talking up Annaly as a great business model with strong, competent management. And, best of all, the stock was a buy, buy, buy! Less than six months later the stock was a sell, sell, sell.

Why? The reason given was that the company was not fully transparent and “we don’t know what’s in their mortgage portfolio”.

Did management become less competent within six months time? Did their portfolio change materially? Did macroeconomic concerns or other conditions change? Not as I could tell.

I owned shares in Annaly during the period related to above and didn’t sell on the strong advice of the show host. I did eventually sell Annaly, and for my own reasons. During my multi-year holding period, the stock and its dividends also rewarded me very well.

Now, my point is not to get you to consider shares in Annaly Capital. In fact, it is a risky investment if you don’t understand and keep a sharp eye on U.S. interest rates and Libor changes. Nor would I want you to consider the financial pundit wrong in what he was saying.

My point is I made a that was right for me based upon my own due diligence.

My very best point is that you have to buy shares in good companies with sound management when the stock sells at fair value or less. This is the true path to personal financial security. And, you have to consider long-term holding as part of the wealth building plan.

You also must always conduct your own due diligence because too often financial show hosts have their own agendas or those of the producer. The business that they’re in is all about talk-talk and ratings. You may pick up a few tips or tidbits, but ultimately it’s your money you’re spending.

As an alternative to “talking heads”, the internet is full of good information covering any publicly traded stock on all market exchanges. Informative beginning sources include Morningstar, Seeking Alpha, and Google Finance.

With some basic financial knowledge and applied practice, you can learn to make good personal decisions before spending hard-earned cash.

My best advice: do your own research keeping with your own personal goals. At all costs, beware the pundits and talking-heads.

I have been an active investor for over 35 years. My lifelong interest in personal finance has led to teaching community classes to a variety of groups. My investment experience is in Equities, REITS, Oil & Gas Royalties, Utilities, and Varied Fixed Income. JG is not a registered investment representative. The opinions of the author are not recommendations to either buy or sell any security. Prior to investing, please conduct your own due diligence and talk to your financial advisor or security professional.