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Ben Stein How Not to Ruin Your Life

Ben Stein, How Not to Ruin Your Life

Financial Gurus: They're Only Human

by Ben Stein

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Posted on Monday, February 2, 2009, 12:00AM

Some months ago I was a guest on a cable news show; the discussion centered on what were then the early tremors in the stock prices of a number of financial companies. Rumors about the losses in subprime had been floating around, and many major financial firms had been hard hit.

We began by discussing the recent price drop of Merrill Lynch after talk of major problems had been found -- or allegedly found -- on its books. I said I believed that Merrill was a solid firm and that its stock price revealed an unrealistically pessimistic view of the firm's future. At the day's price, I said, Merrill was a major bargain.

Another guest on that show was financial figure, stock picker, and prognosticator Peter Schiff. He strongly disagreed, saying the financials were in terrible trouble.

Yes, I Was Wrong

Now, it is an understatement to say that Mr. Schiff was right and I was wrong in this case. I had foolishly believed Merrill's protestations of its soundness. Moreover, I had mistakenly believed that the federal government would never allow the financial sector to reach the edge of collapse without supervision and rescue across the board. Again, I was wrong and Peter Schiff was right -- in a very big way.

Since that time, I have received a huge amount of email from Mr. Schiff's fans, telling me what a loser I am and how hopeless a dunce I am. I am not quite sure why that is. I often disagree with others on TV and have never gotten the volume of hate mail I have received from Mr. Schiff's followers.

Since I have repeatedly acknowledged my mistakes, I just delete the email and go on with my day. But in the past few days, an article appeared in 'The Wall Street Journal' that was quite telling about what frail vessels we humans are when it comes to money.

'The Wall Street Journal' Weighs in on Peter Schiff

In this article there was an analysis of how Mr. Schiff's investors at his Euro-Pacific entity have done. To put it mildly, the word is bad. While full results were not made available, the article stated that the Euro-Pacific investors' portfolios were often down 50 percent or more in 2008. This was in part because of misplaced bets on commodities and stocks of developing nations, and large wagers against the dollar.

As we now know, stocks of less-developed countries have been seriously demolished in the correction, far more so than the major U.S. indexes. Commodities, especially energy commodities, have fallen sharply. And the dollar has rallied amazingly against almost all currencies as investors seek shelter in what is generally held to be the safest country with the safest currency.

So Peter Schiff was right about financials -- but he was wrong about many other elements of the investment picture.

Comparing Portfolios

Your humble servant, Ben Stein, and his writing partner, financial guru Phil DeMuth, have on many occasions published our model portfolio. It is not at all complex. It is just half Vanguard Total U.S. Bond Index and half Vanguard Total Stock Market Index. It is not sexy -- although we have offered ways to spice it up a little.

Thanks to the strength of bonds and the relative strength of the U.S. stock market compared with overseas markets, our model portfolio was down roughly 20 percent in 2008. This is obviously not great compared with an up result. But it is pretty good compared with the results that Mr. Schiff apparently posted.

I do not mention this to brag. I have some investments outside the model portfolio that have done extremely poorly since the correction began, and I make mistakes constantly. My point is something else.

Gurus Aren't Miracle Makers

Do not look to gurus to accomplish miracles. Sure, they can on occasion. But the markets are so unpredictable and complex that the future is simply unknowable in any short period.

Warren Buffett is by far the smartest man in finance I have ever met. Yet even Mr. Buffett has made extremely serious errors by investing heavily in bank stocks. He even made a disastrously wrong bet (so far, I think it will turn out fine in the end) by selling an immense put on the stock market, wagering it will revert to its 2007 highs within seven years. (Marked to market, this is a nightmare, but if Buffett thinks it will turn out OK, who am I to say it won't?)

I assume that Peter Schiff is a fine and capable man. But he is not Superman. He is a man. No more. Recently I heard him make a prediction on a California radio station of simultaneous ruinous inflation and a complete collapse of the economy.  At least this is what I understood him to be saying.

This scenario has no precedent in history that I am aware of. Maybe we have skipped the rails of history, but a huge increase in demand -- fueling inflation -- coincident with a huge drop in economic activity (which is what I understand Mr. Schiff to be predicting -- maybe I am wrong) would make no arithmetic sense. Maybe it will happen anyhow. But it is very far removed from typical cause and effect.

Again, I emphasize that I am extremely fallible, too. We all are.

So far, bonds as recommended by Phil DeMuth have been wonderful. And cash, highly recommended by investment advisor Ray Lucia, has also been excellent. A huge slice of liquidity, plus immense diversification -- nothing exotic -- still looks good, even in these dicey times.

I admire Mr. Schiff for getting the financials picture so right. Maybe he will get other things right in future years. But as the proverb says, "Put not your trust in princes."

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  • Yahoo! Finance User - Wednesday, February 18, 2009, 7:36PM ET  Report Abuse

    • Overall: 5/5

    The unfortunate outcome of Peter Schiff's great marketing abilities and not so great investment suggestions is that people think he's a "guru", like Ben says, and they invest all of their retirement money in his ideas. I think Mr. Schiff is a bit irresponsible in not giving better guidance in that respect. But he was spot on in his forecast. Of course, so were many gurus before him.

  • Eric - Monday, February 16, 2009, 4:44PM ET  Report Abuse

    • Overall: 5/5

    Ben stein is one of the most sane and intellectually honest people out there.

  • Yahoo! Finance User - Monday, February 16, 2009, 3:51AM ET  Report Abuse

    • Overall: 1/5

    Peter Schiff runs a brokerage not a mutal fund, not that I care either way but dude you're a permabull..thats just as terrible as anyone else. Begone

  • Yahoo! Finance User - Saturday, February 14, 2009, 8:25AM ET  Report Abuse

    • Overall: 5/5

    "I often disagree with others on TV and have never gotten the volume of hate mail I have received from Mr. Schiff's followers." This is because many of them are as arrogant as Schiff. Even when they're wrong. Don't be bashful Ben, you should boast about your performance for 08. Your recommendations did far better than the averages and far exceeded Schiff's performance.

  • ImOwnedByGod - Thursday, February 12, 2009, 3:13AM ET  Report Abuse

    • Overall: 5/5

    Even the best economists are human and don't know the future. Only God knows the future, the rest of us are just trying to make educated guesses. We aren't God, so why should we expect the financial gurus to be? Great article Ben! I think we should have Ben Stein for President. He knows more about the economy than the current President.

  • Yahoo! Finance User - Tuesday, February 10, 2009, 11:54PM ET  Report Abuse

    • Overall: 1/5

    Get this guy out. Knows nothing about finance. Just advances his own personal agenda. Sub Madoff at best...

  • Yahoo! Finance User - Tuesday, February 10, 2009, 8:57PM ET  Report Abuse

    • Overall: 5/5

    Ben, I am glad to learn that you are able to ignore the regular flood of hate mail that many (most, all?) experts on the finance page receive after posting a column. Who are these people? Is this a game for them? I gave you five stars for courage and perseverance. Thanks for the usually interesting effort (although I must add I disagree with you about evolution, but I would never call you a dunce).

  • Yahoo! Finance User - Tuesday, February 10, 2009, 3:08PM ET  Report Abuse

    • Overall: 1/5

    So we are supposed to forgive all of your terrible advise and ridiculous statements just because you admited what everyone knows? That you were wrong? Why don't you admit more of the obvious? That you are an idiot. Ben go back to making B movies running around in boxer shorts. YOu are certainly no financial guru. You are an idiot just like the rest of the idiots in the media including Schiff. The previous commenter got it right about you guys.

  • Yahoo! Finance User - Tuesday, February 10, 2009, 2:04PM ET  Report Abuse

    • Overall: 1/5

    No Ben, actually you were miserably wrong and Schiff was only mostly wrong. The fact that you and he and other clowns continue to make the circuit in the media should tell Americans that the media is useless. People need to start asking why the real experts have been censored. There are experts who have called everything but they aren't being given airtime. As a result most Americans don't know they exist, but they do and the top hedge funds know about them. http://globaleconomicanalysis.blogspot.com/2009/01/peter-schiff-was-wrong.html

  • Yahoo! Finance User - Tuesday, February 10, 2009, 11:56AM ET  Report Abuse

    • Overall: 5/5

    This is just like his last article. Five stars because his name doesn't rhyme with Fraudbert or Kiyosaki.

  • Yahoo! Finance User - Monday, February 9, 2009, 1:46PM ET  Report Abuse

    • Overall: 1/5

    The ship sank along time ago and now that all your followers have drowned you are sorry. I read your drivel periodically over the past year and that is what it is and was; Total Drivel. You weren't wrong one or twice, you were wrong consistently and the reason for that is simple; you're a Sheep yourself. How you got rich or became a broker or writer is beyond me. Must have married into wealth or your family had it or connections because you're a DOPE. Your IQ can't be more than 110. Don't apologize for Yahoo's mistake of hiring you. I might as well listen to the check out clerk down at the supermarket. Ole Father Ben knows NADA. Please resign an let someone with a brain take over this wasted Yahoo space. You're a Bushky bootlicking fool.

  • not sympathetic - Monday, February 9, 2009, 9:50AM ET  Report Abuse

    • Overall: 1/5

    you are such a "sad sack", Stein. You didn't right this spew to rag on Peter Schiff? horsehockey. You wonder why people wrote into you about how wrong you are, have been, and more than likely will be? Snide little weasels like yourself who know nothing about finanace will receive criticism from common sense people, get used to it. And so now you poo-poo the advent of hyper-inflation? Makes no "arithmetic sense"? what the heck do you no have math or "sense".

  • Yahoo! Finance User - Sunday, February 8, 2009, 4:31PM ET  Report Abuse

    • Overall: 4/5

    I think the article is a fair one.. one-time right does not mean you are a guru.. one-time wrong does not mean you are not a guru (but what's all this guru naming about - yourself interest I guess?). For those who try to push their luck against Asset Allocation.. try harder.. and don't whine on this blog if you cannot retire by keep picking all the wrong stocks (or helping people to pick the wrong stocks... hahahaha)..

  • Yahoo! Finance User - Sunday, February 8, 2009, 1:20AM ET  Report Abuse

    • Overall: 1/5

    Again you miss the point entirely. Someone always wins and someone always loses when you are gambling...and everyone loses eventually. You lost as did most Americans so you will whine and cry, but you won't learn the lesson because you are addicted. You won for awhile and now you can't stop. Gambling should never be confused with investing. Learn that and you can stop the losses and the heartburn. I suggest researching www.maxhouse.com.

  • beotch - Saturday, February 7, 2009, 5:04AM ET  Report Abuse

    • Overall: 1/5

    Sounds like the weather up in Sandpoint has frozen your nuts...Quick, to the Cramer mobile!

  • Yahoo! Finance User - Friday, February 6, 2009, 8:29PM ET  Report Abuse

    • Overall: 5/5

    Thanks Ben for another great article. Isn't it amazing that how so many people can spend so much time bashing you on the internet or through emails without letting anyone know how great ( or poor ) they are at their own personal financial matters ? Mistakes were made by everyone over the last few years and those who got it "right" this time have gotten it wrong many times in the past ( and will again in the future ) Thanks Ben for some honest straightforward advise and insight. And to those taking so much time to make asinine comments or sending emails - get a life !

  • Yahoo! Finance User - Friday, February 6, 2009, 2:27AM ET  Report Abuse

    • Overall: 5/5

    Hi Ben, As usual, I liked your column, perspective and humor.I also appreciate your candor about past mistakes. As for me, I have never paid much attention to financial advice from gurus or anyone else, and I took a beating too (at least on paper...it's not over yet). It is unfortunate, though amusing as well, that your detractors take this stuff so personnally - but they care enough to rant, so there's that. I picture them standing on couches and easy chairs in coffee houses around the globe screaming their diatribes as slightly bored friends dutifully type each utterance and post. Cheer up detractors. The sun will come up tomorrow.

  • Erik - Thursday, February 5, 2009, 11:24PM ET  Report Abuse

    • Overall: 4/5

    I seen many youtube vids on Peter and he was dead on. Ben got nailed and atleast was a stand up guy and admitted it. Take what advisors say as guidelines, not as the bible. Even the brightest in any particular field are destined to be wrong from time to time.

  • Yahoo! Finance User - Thursday, February 5, 2009, 2:43PM ET  Report Abuse

    • Overall: 1/5

    SUMMARY OF BEN'S ARTICLE: 1. Peter Schiff is a fine and capable man now let me use the rest of this article to point out all his shortcomings. 2. Phil Demuth (my business partner and co-author) and I had one model portfolio that only lost 20% of its value. I won't mention that we also recommended many other model portfolios which included financial stocks, emerging market funds, and REITs which lost much more than 20% last year. 3. Don't place your trust in financial gurus unless those gurus are Phil Demuth and myself. Oh, and Ray Lucia who recommends holding nothing but cash. By the way, he made that recommendation after the market crash, I hope you have some cash left. 4. Did I mention not to place your trust in investment princes? Peter Schiff is an investment prince. But I'm sure he's a fine and capable man.

  • Yahoo! Finance User - Thursday, February 5, 2009, 2:40PM ET  Report Abuse

    • Overall: 3/5

    What I think the so called "financial gurus" that give people financial advises should know what they are doing. Addition to that, in any type of investments, the final decision is in our own hands. We should at least do some research ourselves and know what we are getting ourselves into, other than listening to what he say she say and then blames it all on them when things got worst. We are responsible adults, whether gain or loss on an investment, only benefits or hurts ourselves. Final words, in this world the only person that you can trust completely in terms of handling your money is yourself.

  • Yahoo! Finance User - Thursday, February 5, 2009, 1:27PM ET  Report Abuse

    • Overall: 1/5

    Yes Financial Gurus are only human. Just like any large sample of human population, some of them are also outright morons. And you Sir, is definitely one of the morons. But, the worse part is that you are not just another moron, you are a moron with a crooked agenda.

  • Yahoo! Finance User - Thursday, February 5, 2009, 11:21AM ET  Report Abuse

    • Overall: 3/5

    "Financial gurus" are NOT human. What they ultimately are is a CULT - they behave like Gods while deliver exactly NOTHING in terms of reliability or any value to the society yet they demand way above average compensation for their "efforts". And I am not even mentioning conflicts of interests that result in outright misleading of the public in the interests of their paying clients.

  • eugene - Thursday, February 5, 2009, 11:14AM ET  Report Abuse

    • Overall: 1/5

    Bennie Boy, you are right when you say the Gurus are only human. But, you forgot to mention that most of them are very very stupid. Hey, the money on the sidelines will not come in as long as the rediculous daily volitility continues. Again I say "the daily traders have turned the stock market into a Casino". Until naked short selling (including the ruse of borrowing the stock from someone else) is stoped, volitility will continue. And the money will remain on the sidelines regardless of the low interest rates the sideline money is earning. I assure you that I am aware that for every winning short seller there is a loser on the other side of the transaction. But as long as the market is allowed to remain a fun game for traders, the investor will remain on the sidelines. Ben, I know your mind is deteriorating, but I didn't think the deterioration would make you stupid. On another matter, don't you find it strange that Goldman's stock keeps rising while other banking stocks continue to fall. Could it be that Goldman has two new foxes in the Hen House. I bet if we examine the inside of their lips we would find a "Goldman" tattoo.

  • William - Thursday, February 5, 2009, 10:58AM ET  Report Abuse

    • Overall: 1/5

    Ben, when are you going away. Its so funny how you share your opinions and yet you keep your investing results hidden. How yahoo still keeps you is beyond me and to be honest you are doing a disservice to those who do not know any better, and take your advice. Can you please write an article on how your experience and knowledge make you an asset to the public. I think you should join Jim Cramer and leave the public alone

  • Christopher - Thursday, February 5, 2009, 10:08AM ET  Report Abuse

    • Overall: 3/5

    I am starting to believe "financial guru" is a misnomer. Most I see are one-trick ponies, or should I say one-trick perma-bulls or one-trick perma-bears. When will people realize that if you talk about one thing long enough you are bound to be right eventually? Does that really constitute "guru" status? When, also, will people realize that EVERYONE IS TRYING TO SELL THEM SOMETHING, whether it's Ben Stein and his Yahoo column and books, or Peter Schiff and his firm, books, newsletter, etc. We naturally gravitate to the information that agrees with us, whether it be optimistic or doomsday. What is sad as that eventually both will be right and both want nothing more than your viewership and MONEY. I digress: How are we going to pay for all these unfunded liabilities, Ben? With an aging population and a decreasing birth rate, how do you expect our country to fund all this stuff? Oh, I know, we'll tax the rich.. Oh, wait.. I will never try to become rich because I know the majority of it will be taken from me. I CANNOT WAIT to save enough so I can work the bare minimum and let all those counting on feeding off those precious tax dollars starve. I hope the majority of productive savers see they are being hoodwinked and do the same. Who is John Galt?

  • Boubou - Thursday, February 5, 2009, 10:03AM ET  Report Abuse

    • Overall: 1/5

    Gurus , it seems to me, are much less than human. Their profession asserts that they are able to advise ordinary mortals in the same way a doctor or engineer might do and that their professional ability far exceeds that of an intelligent but untrained individual. Based on that assumption millions of poeple put their finances in their hands, and many are now ruined.

  • Yahoo! Finance User - Thursday, February 5, 2009, 9:54AM ET  Report Abuse

    • Overall: 1/5

    Stein is a mouth piece fo Wall Street and makes a HUGE sum of money speaking at mutual fund and investment industry

  • Yahoo! Finance User - Thursday, February 5, 2009, 2:36AM ET  Report Abuse

    • Overall: 1/5

    Ben Stein has been cheer leading Wall Street for a long time. Those who listened to him lost a fortune. Ben was also booted from a college speech for his religious agenda. It's time for Yahoo to show him the door.

  • John - Wednesday, February 4, 2009, 11:37PM ET  Report Abuse

    • Overall: 5/5

    Ben, I've read your books and for the last decade have maintained a passive, five index fund/ETF portfolio. With proper asset allocation and risk assessment that is age and goal appropriate, it has done quite well (bonds, I-bonds and cash especially since 10/08) and greatly enhanced our families wealth. We continue to invest and are poring additional monies into the sectors that are really cheap vis a vis historical valuation. You have done a great service and bring wisdom and humility to a challenging problem by making it simple, doable and measurable. Don't believe for a second that you don't have people out there who appreciate the advice you've offered. I agree with you far more than disagree, and the simple concepts outlined in your books and column still make timeless sense. Mr. Schiff deserves credit where credit is due, his prescient call on the true state of financials, but I've watched some of his disastrous calls and recommendations in other areas that highlight the fallibility of ANY one person to get it right time and time again. Ditto for the sage of Omaha. So Ben, you've been right, with investing and wise living advice, far, far more than you've been wrong. From a grateful reader and fan, thanks!

  • Paul - Wednesday, February 4, 2009, 9:52PM ET  Report Abuse

    • Overall: 3/5

    Ben, C'mon, when the gov't starts throwing around the word "trillion", even a teenager knows a million ain't what it used to be... And that has to mean inflation - even if some of it is past tense (ie. In Cali, houses in San Fernando that cost $90k in the 90's now cost $700k - I'm sorry marble countertops and a coat of paint don't make up the difference).Schiffs prognostication of ruinous inflation is based not on a huge increase in demand, but on a huge increase in dollars and to some degree it has already happened. The relatively puny housing correction right now does nothing to fix the dollar. Think of it as shareholder dilution of America Inc. In some sense, the great monetary inflation is baked into the entire TARP scheme. Saddling future generations with monumental amounts of new debt under a low growth economy is govt price fixing of the inflation expectation. True, stock/home prices will likely be stagnant - they were the canary in the coal mine. For the govt to service the interest on the debt under low growth conditions they need to raise tax revenues somewhere. Since marginal rates can't move much, they intend to collect more taxes by monetary debasement. You pointed out some of his mistakes.Schiff was wrong to see the US in vaccuum. Every other country is trying the same crap right now so exchange rates are staying approx. constant. But this party can't go on forever. What happens when every major currency gets liquified to zero interest rate? Petro-states want an alternative to the buck.Central banks are pushing on a string here to fight 90's Japanese style stagflation. We need high growth. But high growth investments decent return on capital, things like: transistors, cellphones, etc seem unlikely going forward - there hasn't been a major new breakthrough in physics in almost 100 years (think Einstein, Quantum theory, Electromagnetics). Green technology is a capital intensive low margin business. So what? Subsidize - ie. Print money and hand it to companies who make unprofitable green energy things? Overpay the employees and then collect taxes on that basis to service the TARP debt. Can growth really be mandated like that? At the expense of retirees who've saved their whole lives?!? Biotechs likely hold the most promise for producing truely new innovations (since biology holds most of natures unsolved mysteries), but it is riddled with problems that chips & websites don't ever deal with. Are cancer patients really a source of growth? And biology is devoid of an all encompassing model based theory that could allow rapid progress. Most breakthroughs are piece-meal and sporadic. The fundamental problem here is that the modern world is so darn efficient already, and there's 5 billion of us that need something to do. You can't just pay some people to dig ditches and pay others to fill them up with printed money to "create jobs" - not when a machine can do it better faster cheaper. Low rates don't help unemployed people pay their mortgage. Not here, not anywhere. Schiff is right - this is the mother of all messes and quite possibly the worst in history. Some people have benefited immensely from the biggest technological shift ever. It will largely be viewed as a one-time-event at least to most people alive today. Maybe our great-grandkids will live like the Jetsons - but that won't help anyone right now. It will be extremely weird to watch billionaires say 'Let them eat cake' when unemployment reaches 20%. And they'll be no jobs to offer the homeless. Handouts will be poopooed as social wellfare. How can this be good for the dollar? We depend on low cost manufacturing countries like China & technology driven productivity to hold inflation at bay while money grows exponentially. How long can that work? At some point you can repatriate manufact. but at higher cost. For most retirees - their life savings - home/stock profits will prove illusory. Only multi-millionaires who are largely immune to inflation will do ok.

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