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Ben Stein How Not to Ruin Your Life

Ben Stein, How Not to Ruin Your Life

Simple Investing Truths

by Ben Stein

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Posted on Friday, June 20, 2008, 12:00AM

Years ago, I received a letter that asked a brilliant question. The writer essentially wrote, "I read many business publications including the well known ones like Business Week and The Wall Street Journal. I observe that not only are they often at odds with one another. But they often have columnists within each publication who vehemently disagree. Moreover, they often turn out to be mistaken in their observations and predictions. How then do I know who to believe and what I should read to know the truth?"

The man's question haunts me. The older I get (I am now 63 and feel every hour of it), the more clearly I see that much of what is in the media and in the financial media about investments, in particular, is simply nonsense.

Even quotes from famous names with famous addresses are often nonsense. For example, just today I read a column in a well-known business daily about financial stocks. The writer cited a number of reasons why investment bank and brokerage stocks were tanking. He noted the writedowns of their inventories of certain securities and the effect this was having on their ability to use leverage. He closed by saying that Wall Street stocks and shares of financial companies looked bad for the foreseeable future.

But this young man is missing some basics. For one thing, at some point, the mortgage security assets of the investment banks will start to be written UP not down. The rates of default will slow and then reverse course. This is not a guess. This is inevitable. There is a natural limit to how many mortgages can default.

Once that limit is reached and repayment rates stabilize, the people who construct and value the portfolio indices for investment banks will tell them that their portfolios are going up in value. For a variety of reasons having to do with speculation, this move upward could be large and extremely sudden. Once this happens, the financials will likely rebound powerfully.

Will this happen soon? I think so but I do not know for sure. Will it happen some day? Of course. It has to happen unless we assume endless defaults. Is the time to buy financials precisely when they are being hammered and are at multi-year lows? I do not know for sure, but historically, the time to buy any stock or sector is when it has been clobbered.

It would be surprising if that were not true this time, too. I do not know this for sure because I do not know the future. But I do know the past, and I think this goes to the heart of the question my correspondent raised.  If you know the economic past pretty well, you will also have a pretty good idea of the economic future.

Generally, and with few exceptions, "the past is prologue." Knowledge that the economy and various sectors go through cycles tells you that the time to buy is when securities are beaten down and hated. It tells you that money is made slowly, by patiently investing in widely diversified low-cost indices. It also tells you that there have been so far no endless downtrends and that journalists are not the people to trust for investment wisdom. These are a few small but meaningful steps towards answering the question about where truth lies in investing.
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341 Comments

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  • JamesD - Monday, July 7, 2008, 3:53PM ET  Report Abuse

    • Overall: 1/5

    "Ben's good ideas as usual???" What have you guys been smoking lately??? Wall Street has a saying -- "You don't catch a falling knife" Think about it. When four brokerages can report positive earnings in the same fiscal quarter, then think about buying stocks - not before. For all you yahoo's who made money listening to Ben, did you go the opposite way??? I can't see how anyone has made money listening to this bozo. On 10/1/1999, the Dow Jones was at 11,497, now (almost nine years later) it's at 11,300. How do you numbnuts who "follow" Ben's terrible advice think that you've made a lot money investing in index funds??? BTW, I still have some shares that I shorted on Merrill that I'm willing to sell Ben at $76 a share.

  • John S - Monday, July 7, 2008, 11:00AM ET  Report Abuse

    • Overall: 5/5

    Good ideas as usual.

  • HarlanA - Saturday, July 5, 2008, 9:54PM ET  Report Abuse

    • Overall: 5/5

    Ben Stein is right on the money. If you want to make money buy broad index funds with low costs. Also, the best time to buy a stock is when it is beaten down. It beats paying a lot of money for a stock then sell it after the price is down.

  • jonathan - Saturday, July 5, 2008, 9:39PM ET  Report Abuse

    • Overall: 4/5

    I think Ben Stein is dead on with his answer. I read a book about Peter Lynch called "Beating the Street" it was a great book and it pretty much got me excited about stocks and I have been looking into "FNM" and other stocks but as long as housing continues to go through the normal cycles there is money to make.

  • Doreen - Friday, July 4, 2008, 12:52PM ET  Report Abuse

    • Overall: 1/5

    The rules Ben grew up by no longer apply, and no one knows what the new rules are.

  • scarf - Thursday, July 3, 2008, 6:55AM ET  Report Abuse

    • Overall: 1/5

    I agree with his first point, most of these commentators are idiots - particularly him. I got out of the market in November when it was obvious we were going into a recession. No way am I back in at least before the end of the Summer. If it looks like Obama is getting in, probably not till next year when we see how bad he wants to slam us with taxes. Sorry Ben I have a brain and I don't need to watch my money disappear.

  • Yahoo! Finance User - Tuesday, July 1, 2008, 3:53PM ET  Report Abuse

    • Overall: 1/5

    I agree with the previous poster. Ben Stein has ZERO credibility in talking about the banking crisis. He was one of the original people who said it was just a small part of subprime, and would have NO effect on the overall market or our economy. WAY TO GO BEN!!!! This crisis is FAR from over. Financial stocks will be lower at year end than they are now. Listen to Ben Stein at your own risk!!! Also, read a book called "The intelligent investor" by Ben Graham. All these people who say put all your money into the market because it always goes up are full of it. Grahman basically recommends a 50/50 split between stocks and bonds, and never more than 75% in stocks, and only 75% after a protraced bear market. We have JUST BEGUN entering a bear market (down 20%) for the S&P.

  • Yahoo! Finance User - Tuesday, July 1, 2008, 1:39PM ET  Report Abuse

    • Overall: 1/5

    Ben has consistently underrated the credit bubble. He doesn't understand it nor its scope so he will continuely be surprised by the depth of the downturn.

  • TomO - Monday, June 30, 2008, 10:43AM ET  Report Abuse

    • Overall: 5/5

    As a Student of markets and history, I could not agree with Ben more. Most who have a problem with Ben are from the "immediate gratification" camp. The market has a systematic way of disapointing those Folks with great regularity.

  • CarlinVegas - Monday, June 30, 2008, 9:39AM ET  Report Abuse

    • Overall: 5/5

    You have to count on someone and you can count on Ben.

  • walter k - Monday, June 30, 2008, 6:28AM ET  Report Abuse

    • Overall: 5/5

    Good one Ben, I think we are at a time to start accumulating stack that have taken a beating. Hold some cash in reserve if things continue to go lower so you can buy more. Thanks

  • clem - Sunday, June 29, 2008, 5:33PM ET  Report Abuse

    • Overall: 4/5

    i really enjoyed that show you had take ben steins money. i only hope you haven't let wallstreet take all your money on this emotional rollercoaster it has taken us all on. it's been misbehaving ever since alfred e. took office as the king. remember when he was talking recession then or was i the only one listening at the time. this country is a mess in so many many ways, you name we have messed it up. finance, energy, manufacturing, immigration, healthcare, foreign policy, what can we screw up next. wait until next week and find out, but until we are all unemployed keep investing because as woody allen says i don't know if there is an after life but i will pack a change of underwear just in case.

  • ward p - Sunday, June 29, 2008, 4:50PM ET  Report Abuse

    • Overall: 4/5

    Journalists must sell papers, they cry doom and gloom to accomplish this. I do not care about most touts at a racetrack or in the financial press.

  • VINCENT - Sunday, June 29, 2008, 3:18PM ET  Report Abuse

    • Overall: 4/5

    Ben will always get you back on locical track

  • Yahoo! Finance User - Saturday, June 28, 2008, 9:23PM ET  Report Abuse

    • Overall: 5/5

    I don't need the money tomorrow, next month or next ten years. What will happen 30 years from now is more important to me. Up or down does not matter; I stay investing.

  • Lots of acronyms - Saturday, June 28, 2008, 11:42AM ET  Report Abuse

    • Overall: 5/5

    Andrew C -- you've guaranteed the market will continue to go down. Gee, that's impressive. How manys stars should I rate you for that insight?

  • Yahoo! Finance User - Saturday, June 28, 2008, 9:48AM ET  Report Abuse

    • Overall: 3/5

    I have never understood how wall street is legal. The only way wall street can legitimize itself is to fix the price of a stock to a PE of 1 based solely on the last corporate earnings statement. This way, the value of the stock is always directly related to the value of the company. The stock price would then change every three months and nobody can make money trading channels, bumps and dumps, hype and rumor, etc. The playing field is equalized and now you can own individual stocks based solely on the companies performance. However this still has the pyramid scheme problem in that no company lasts forever and the last one holding the paper loses.

  • Andrew - Friday, June 27, 2008, 11:19PM ET  Report Abuse

    • Overall: 1/5

    Nope. Wrong again, Ben. This bear market in stocks has a lot further to go. I guarantee it.

  • SeymourS - Friday, June 27, 2008, 6:36PM ET  Report Abuse

    • Overall: 1/5

    At least Ben should get points (or a star) for consistency. No matter the circumstances, Ben will find a reason for why buying stocks is good on *insert date of column*.

  • Robert - Friday, June 27, 2008, 2:21PM ET  Report Abuse

    • Overall: 3/5

    I am 80, still active in the market and doing very well, even today. For sometime these experts writers have been wrong, and their "wrong" has told me what was "right" to do and made a good income for doing it.

  • khosrow - Friday, June 27, 2008, 12:03PM ET  Report Abuse

    • Overall: 5/5

    Agree. No one can predict the future with certainty. If the analysts were so good, they will be making so much money, they don't have to do this kind work unless they love it.

  • taopraxis - Friday, June 27, 2008, 11:48AM ET  Report Abuse

    • Overall: 1/5

    With many stock funds devoid of a real (inflation-adjusted) positive return after taxes and fees for decades, now, the touts, shills, and hucksters of the world are soon going to find their tent is empty and an entire generation of suckers has gone home for good.

  • Yahoo! Finance User - Friday, June 27, 2008, 11:27AM ET  Report Abuse

    • Overall: 5/5

    People seem to either LOVE or HATE Ben's article; Seems like most reviewers give it either 1 star or 5. Those that are knowledgeable about investing: 5 stars. Those that aren't: 1 star. Those that understand the markets, and know it's better to invest when the prices are down: 5 stars. Those that don't understand, and think they're better off to invest when the markets are rising or are already high: 1 star. Those that are comfortable in their knowledge of investing and their own investment plan, know Ben has written a good article containing with sound advice: 5 stars. Those that are uncomfortable or scared when the market falls, think the world is coming to an end, need somebody to hold their hand and tell them everything is going to be allright: 1 star. Those that aren't foolish enough to complain and waste both money and buy-low opportunities thinking they can time the markets: 5 stars. Those that do think they can time the markets and are complaining that the markets are down and everything's broken: 1 star. Which one are you??? I have 2nd thoughts about posting this, because the 1-star folks are the VERY ONES that make us 5-star folks richer; Call it my soft side. The 1-star folks will be buyers of my investments once they're priced really high again: In fact you've already promised me you would: "I'm not buying until the market goes up." "Only a fool would buy when the market's going down.", etc. You want terribly to buy low/ sell high, but you promise on here that you'll do the exact opposite. The scary thing to me are the big words, "almost"-convincing arguments, and insults some obviously educated folks on here heave at Ben. You can ALMOST convince me you you're right and know what you're talking about ... but you arent' and you don't!

  • Yahoo! Finance User - Friday, June 27, 2008, 11:15AM ET  Report Abuse

    • Overall: 4/5

    So the advice from stephen m. is to pull out when stocks go down? Good luck what that

  • Carlton - Friday, June 27, 2008, 10:40AM ET  Report Abuse

    • Overall: 5/5

    As always Mr. Stein, provides thoughful insight and encourages us to use our minds, not just follow the pundits.

  • Stephen M - Friday, June 27, 2008, 10:40AM ET  Report Abuse

    • Overall: 2/5

    Ben, you say: "Knowledge that the economy and various sectors go through cycles tells you that the time to buy is when securities are beaten down and hated." Oh, sure! And the people who jumped into the "beaten down" markets of 1930, 1939, 1973 and 2000 suffered greater losses because the market was hardly finished with its "beaten down" process. It would be wiser to get out of the market in a down year and not get back in until the market shows an uptick.

  • Thomas - Friday, June 27, 2008, 9:27AM ET  Report Abuse

    • Overall: 5/5

    Good thoughtful comments. One thing, though, Ben. 63 isn't old. If you feel old, you need to get some exercise.

  • John - Friday, June 27, 2008, 8:28AM ET  Report Abuse

    • Overall: 5/5

    The fact that analysts disagree on investment prospects is one of the key ingredients in a healthy market. It is when people agree that markets go to excess in either a positive or negative direction. Each analyst should be bringing independent thought and some new insight to each opinion. The fact that it's hard for readers to tell who is right and who is wrong, argues for the index fund approach, of which I know old Ben is a proponent. Great work Ben!

  • morbo_3000 - Friday, June 27, 2008, 4:34AM ET  Report Abuse

    • Overall: 1/5

    This witless (with obvious ulterior motives) is once again proving why he has no business giving his bad financial advice. He has no concept of the market and can't admit, apparently under the most extreme circumstances, when he's clueless. Is this the kind of "adviser" yahoo should be offering its patrons in such dangerous financial climes? Is someone paying this dolt to give egregiously and blatantly damaging advice? Who could be ignorant enough of the markets to support such sleazy generalities???

  • The Prof - Friday, June 27, 2008, 12:13AM ET  Report Abuse

    • Overall: 1/5

    Ben, maybe you feel so old because you've actually been drinking too much of the Kool-Aid you're so fond of peddling here on Yahoo finance. Suggesting to readers that the time to consider buying a sector is when things have been clobbered - without any legitimate indication of when that clobbering might end, is just wrong on so many levels. I'm sure those shorn sheep who bought after the 1966 market break, only to find themselves 12% under water some eight years later, espoused to a similar "buy-low" philosphy. I wonder what these wide-eyed advice seekers ended up doing when things got really, really scary. Until all the cards are on the table, it's just can't be scary enough. Continued write downs, leading to continued losses, are still more likely than not as the economy languishes, industry jettisons more human capital in favor of feeding the fossil fuel habit, and mortgage defaults increase. This is just too ugly market to be shilling in, don't you think? So, unlike your non-commital advice of "I do not know for sure (but sooner or later I'm bound to be right) I'll commit to a definite opinion here: I think your definitely dead wrong, and you can't justify it by suggesting that you'll ultimately be right. The financial sector should not be bought -under any circumstances - until we have an inkling that the clobbering is truly over.

Showing comments 6-35 of 341<< PreviousNext >>
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