Fix It Friday Ep. 12 - Illusions and Collusions: How Big Wall Street and Financial Media Collude to Profit at the Investors Expense

• Financial media and Wall Street firms often prioritize their own profits over investor interests, creating fear and uncertainty rather than providing helpful advice.
• Expert financial predictions are frequently no more accurate than a coin toss, with more famous experts often being less reliable.
• Long-term investment success relies on understanding historical trends and resisting the urge to react to short-term market movements.
• Many alternative investments, marketed as protection against volatility, may simply conceal losses rather than provide true value.

Disclaimer: [00:00:00] The following podcast by Fusion Family Wealth, LLC Fusion is intended for general information purposes only. No portion of the podcast serves as the receipt of or is a substitute for personalized investment advice from Fusion or any other investment professional of your choosing. Please see additional important disclosure at the end of this podcast.

A copy of Fusion's current written disclosure brochure discussing our advisory [00:00:15] services and fees is available upon request or at www.fusionfamilywealth.com. 

Jonathan Blau: Hello everybody. Welcome to another episode of Fix It Friday. Today, uh, I'm gonna talk about. Uh, two things that are related, which is the financial media and [00:00:30] Big Wall Street, big Wall Street firms.

How both of those entities I. Which many investors view as, uh, entities that are out there to help them make better decisions about their planning, about their investments, [00:00:45] uh, rely on, uh, almost daily by tuning in the CNBC to kind of figure out what, what's going on in the financial world and what maybe the investors should do about it.

So the, the trouble is, is that when we dig deep into those, uh, [00:01:00] relationships, the, the one between big media and Big Wall Street, they're very problematic. So the goal of the investors is to say, let me tune in and see how I can get some help. The goal of big media is. Not to help the investor. [00:01:15] In fact, I would say from being the business 30 forgives, most of these media, uh, um, people are not able to help the investor.

They're not qualified to help the investor. So what they're really doing is they're looking to increase ad [00:01:30] revenues for the media company. And the way they do that is they make stories that are as sensational as possible, come out as often as possible, uh, on almost a 24 7 news cycle. And in in, in the general [00:01:45] media industry, there's an old saying that says if it leads, it leads.

So we're gonna report on the shark attack and the plane crash. Things that don't happen often, but things that people are gonna be very frightened about. And the more clicks that will result from that, uh, reporting on our [00:02:00] stories, the higher our ad revenues. So that's the goal.

Voiceover: Welcome to The Crazy Wealthy Podcast with your host, Jonathan Blau. Whether you're just starting out or are an experienced [00:02:15] investor, join Jonathan as he seeks to illuminate and demystify the complexities of making consistently rational financial decisions. Under conditions of uncertainty, he'll chat with professionals from the advice world, entrepreneurs, [00:02:30] executives.

And more to share fresh perspectives on making sound decisions that maximize your wealth. And now here's your host. 

Jonathan Blau: Financial journalism is not really journalism. It's really [00:02:45] results oriented marketing disguised as journalism. And the results they're looking for is higher clicks and higher ed revenues.

Now the trouble is they're in a collusion. With Big Wall Street. So when you see, um, all of the big Wall [00:03:00] Street firms, uh, managing directors, for example, big titles, they'll appear regularly on CNBC. And sometimes you'll have, uh, often you'll have two of them on, on the left, one on the left side of the screen, one on the right, and they'll come [00:03:15] at them with this unanswerable question.

Uh, for example, uh, a little less than two months ago, beginning of April, we had a. Two days of back to back 5% decline, which was historic. And so during that 10% decline [00:03:30] in two days, the question was posed. Is this 10% decline, the start of the next bear market, or is it a buying opportunity? I don't know, flip a coin.

But the reason they ask that question is Big Wall Street firms have an incentive to get the [00:03:45] investor concerned because if, if you're not concerned and you just stay still with your portfolio, you're not buying their expensive products designed to quote unquote protect you against the risk. Of the market, which is broadly defined in our industry [00:04:00] as, uh, up and down movements, temporary of the, uh, price of the investments that we own.

And so by getting it to react, they increase their sales, they increase their profitability. So they, they're actually doing the opposite of what, uh, what my firm does, [00:04:15] which is teaches investors never to react to current events, politics, or market moves, uh, in a way that they would change their portfolio in response to those things.

Only change the portfolio or the plan in response to your objectives changing the media. And the [00:04:30] big firms do the opposite because again, their goal on the media side is to increase clicks and add revenues and increase your fears to do all of that. And their partners in crime on the Big Wall Street side, uh, are are looking for the same effect to get [00:04:45] you to react.

So that they can get you to move around and get more products in the portfolio. So what are we supposed to do and, and why, why do we even tune in all the time to, to the big media? So one of the things, Daniel Kahneman, who, uh, [00:05:00] I call him the father of behavioral finance, he won the Nobel uh, prize and economics for his work on judgment and decision making and what he described hindsight as the ability to explain the past.

And that that ability to [00:05:15] explain the past by listening to expert forecasters on CNBC, we think we have the ability to explain the past, which we do after it happened, and that gives us the illusion that the world and the future will be more understandable, and that's the problem. The world is not [00:05:30] more understandable because someone explains to you why what just happened happened.

But that's what the media has us trained to do in terms of our thought process about what they're reporting to us. There's a guy named Phil Tetlock, who's the co-author of a book called Super Forecasting. So [00:05:45] this is, so this story in the plot thickens, meaning we tune in to, to the news to try and learn the past 'cause that makes us think that we'll understand the future better.

Here's what the problem is. What Tetlock found in his seminal work on Expert [00:06:00] Forecast is in general expert forecast is have about a 49% accuracy rate in general. So he looked at all the forecasts and that's what he came up with. So basically it's the same as a coin toss. It gets worse. What he also found is, is [00:06:15] that the smarter and, and the more famous the for the smarter sounding and the more famous the forecaster, the managing director from, from Goldman Sachs, who used to be the famous author, the smarter uh sounding and the more famous [00:06:30] they are, the least accurate, their forecast.

Guess who CNBC wants to have as guests on their, uh, media show? They want the most famous and the smartest sounding people, which are the least accurate forecasters. And that's who we are [00:06:45] relying on, uh, to satisfy our hindsight bias. The, the, the ability to to, to understand the past will help us to, to better understand the future of what lies ahead.

As we learn all of this, we have to say to ourselves, when fame is the only predictor of [00:07:00] accuracy, not level of education, right, just fame, the more famous they are, the least accurate they're gonna be. Now that I'm teaching you this, you'll know, don't listen to experts, quote unquote expert forecasters, but understand that this is the game they play.[00:07:15] 

And, and the, the smarter they are doesn't mean that the better forecaster it gonna be. It means that the better able they are to spin tails, to come up with a narrative to justify you believing in the desired outcome that they're [00:07:30] actually talking about. The one thing I always say across the podcast. Is that there's one defining characteristic about the future, and that is, is that there are no facts about it.

The person with the highest level PhD in [00:07:45] finance or economics, the person who never went to college or the person who inherited money or built their own business successfully, none of those people have one more fact about the future than anyone who's listening to this podcast or than the podcast or me, myself, has [00:08:00] so understand that just because they sound smart.

It doesn't mean they know the future. In fact, recognize what we've just talked about. The smarter they sound, the more famous they are, the, the less their prediction is gonna be accurate about the future. So, so there are [00:08:15] three types of forecasters. This is important. There are those who don't know where the market is going.

There are those who know, they don't know where the market is going. And then there are those who know, they don't know where the market is going, but they get paid a lot of money to [00:08:30] pretend that they do. And that's the other thing to understand about the media and the big Wall Street firms. Uh, who advertises on the media shows, uh, Goldman Sachs, JP Morgan, uh, the trading company's Fidelity.

So there's an incentive [00:08:45] on both sides, right? They get invited on the shows, they pay the advertising fees. The more sensational the stories are, the higher the fees go and the more afraid the investors made to feel. The more likely an investor is gonna buy more products and so forth. It's a virtuous [00:09:00] cycle that at our expense, the investor's expense is designed to help the big firms and the media to increase their profits.

So here in, in conclusion, what we need to do to, to fend off against the effects of all this one, is go back to basics when it comes to your [00:09:15] investment and your planning. Uh, you can listen to the one of the more recent fix at Fridays. It's called ten seven and three are the most important numbers in investing.

10 is the long-term return for stocks. Six is the equivalent long-term return for bonds, and three [00:09:30] is the inflation rate. Uh, when you take the 10% for stocks and subtract inflation, you get 7% for the last a hundred years of return In stocks, you, you do the same thing for bonds. The 6% for bonds minus the three inflation, you get [00:09:45] 3% a year for the last a hundred years.

And so stocks have made about two and a half times more than bonds. That's happened by the way, I was born in the sixties. Forever, but I'm just gonna go from my lifetime. So 1960, the s and p was 60. Today it's about [00:10:00] 6,000. So it's gone up a hundred times. The millions turned into a hundred million inflation maybe has gone up a little more than 10 times.

So, so investing in real companies has continued as it always has to, to trounce inflation and do the job we needed to do. But it did that in the face [00:10:15] of my lifetime of three Hals or more of the s and p 500 in 19 73, 4 in 2002, and then again in 2008 and nine. There have been about nine or 10 recessions.

There have been interest rates as high as almost 20 and as low as [00:10:30] zero inflation, as high as almost 20 and as low as close to zero. There have been Democrats and Republicans, right? But anyone who's tried to react to any of these news items or current event fears, uh, who's president, what the pan, when the pandemic is [00:10:45] gonna do, or what the war in Russia and Ukraine is gonna do when they react by changing their portfolio, selling stocks, and then buying back One quote that does settles.

Studies show they've made less than half of the returns, uh, that for that period I just mentioned since 1960, it's close to [00:11:00] the long-term average of about 10, 11% a year. So the best way that we can think about it is I. All I have to do when there are, uh, scary items and, and bad news, uh, reports as it relates to the financial markets to [00:11:15] succeed and get that long-term, 10% plus return is I need to do the hardest thing, uh, for human nature to do and the most important, which is nothing.

And if, and if times are tough. One of the best solutions I have for everyone is change from [00:11:30] CNBC and tune in immediately to the Cartoon Network. I, I find that to be an effective strategy during, during tough times. Embrace the history of the markets that I just, uh, taught you and recognize what Barry Riol, [00:11:45] who's, who's another behavioral investment counselor who's very successful in our industry and very smart, he says the three most important words in investing are, I don't know, I.

You'll never hear that from one of these Goldman Sachs or UBS [00:12:00] or, or Morgan Stanley, you name it. Uh, two people on the screen, uh, asked the unanswerable question, is this the next bear market or is this the, uh, beginning of, uh, uh, of an opportunity to buy? They'll never tell you, I don't know. 'cause that doesn't [00:12:15] sell their story.

And, and lead to the goal of increasing fear, which increases their profits. So understand if you ever ask an advisor that question, is this the next payer market? What's gonna happen next year in the markets? If they tell you anything other than, I don't [00:12:30] know, get up and run the other way. So hopefully, um, this episode of Fixed It Friday has been, uh, helpful.

We will help you to avoid the, uh, the effect of what I call the illusion of predictive value. That somebody with a fancy [00:12:45] title, a fancy education somehow is predicting the future, and that their predictions are actually likely to reflect whatever the actual outcome is going to be. It won't, you can listen to that, uh, podcast.

Also when you get a chance, the illusion of predictive [00:13:00] value, I think it'll be helpful. I want to come back to one other thing. Um, the media, the industry right now, the financial industry, uh, is beginning to push what are called alternative investments. I. These are things like, uh, private equity [00:13:15] meaning, uh, investments in companies that don't trade on the public markets like an IBM or a Microsoft.

And they lock your money up for a number of years, which is one of the reasons they push them. You can't really get out of 'em easily. They're not treatable. Uh, but they tell you that the reason they're pushing 'em is because [00:13:30] they protect you from a traditional stock market volatility. And one of the things I'm just gonna point out is I got an email a couple of months ago.

During the April decline, um, or, or a month or so ago during April decline from a firm trying to get me to [00:13:45] adopt alternative investments, private equity for a client. And what they pointed out is private equity's been very helpful during this 10% decline in two days, I. Because they say the private investments don't show the decrease in value until [00:14:00] sometime later.

They don't what's called mark to market. So if I see IBM during those two days, it's gone down, let's say 10%. The private investments haven't even been calculated yet, so. Person looking at their private investment understatement tomorrow it's, it looks the same as it did two days ago. [00:14:15] So think of what they're telling you.

They're not telling you to buy the private equity because it's a good investment. They're telling you buy it because it conceals the decline in the market. And, and, and so I leave you with that thought. It, it's very dangerous out there. Uh, so always go back to [00:14:30] basics. You need more tens. Stock returns than, than than sixes.

Bonds returns and there's no facts about the future. Don't try to discern it and stay on course and ignore the, if it bleeds, it leads news. Thanks again for tuning [00:14:45] in to Fix It Friday. Look forward to, uh, having all the listeners join us on the next episode For those who might be joining for the first time.

Uh, you can access the podcast on all your favorite venues, but you can also access it [00:15:00] easily@crazywealthypodcast.com or on our website, fusion family wealth.com. Everybody. Uh. Hopefully we'll have a good summer. Until next time.

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Disclaimer: The previous podcast by Fusion Family Wealth, LLC Fusion was intended for general information purposes only. No portion of the podcast searches the receipt of or is a substitute for personalized investment advice from Fusion or any other investment professional of your choosing. Different types of investments involve varying degrees of risk, and it should not be assumed that future performance of any [00:15:45] specific investment or investment strategy or any non-investment related or planning services, discussion or content will be profitable.

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