How I Gave Up Reading Financial Advice

Question: When the price of an ounce of gold fell about $400 this past Febrary and March, did Fed chairman Paul Volcker call and tell you to get out of it? When silver dropped from about $50 an ounce in late January to about $11 an ounce in late March, did you hear from the Hunt brothers? When the house you thought you could sell sat frozen like an ice monster this past winter, draining your pocketbook and attracting no buyers, did your mortgage banker send you flowers? When you put some of your investment nest egg in Conti Commodity's McLean II fund, did you get a letter of condolence from the fund's trading advisor as your equity shrank and the fund was liquidated with about a 75 percent loss of your capital? When the value of the common stocks you bought on a hot tip from your stockbroker didn't even keep up with the pace of inflation, just how often did your broker invite you to lunch to apologize?

I know, I know: I Those are ridiculous questions.

Oh, the economic facts are right. Gold and silver did take a Niagara plunge, the housing market has been soft, the commodity fund did fold and the stock market in the Seventies was about as exciting as an obscene phone call from your grandmother; but the odds are that you didn't get much sympathy as you were whipsawed through the troubled winds of our economy.

The accountants didn't call and the investment brokers looked the other way and the tax lawyers had to go to the Bahamas and the financial counselors were: (A) out to lunch, (B) away from their desks, (C) in conference, (D) not available, but can someone else help you?

In short, it's been lonely for most of us. That's the frightening thing about an economy that wobbles from inflation to recession, from high interest rates to high unemployment, from price movement to stagflation: We feel alone.

So what do we do?

Believe it or not, a lot of us go out and buy books about investment strategies. We try to educate ourselves. We try to become sell-taught economic wizards, gnomes of Main Street. J. Paul Anybodies. It may not be much, but it's all we have, and the publishing industry is cranking the titles out for us: How to Survive ..., How to Profit..., Invest in ---- and Double Your Money. Titles like that, hinting at solutions, techniques, panaceas, approaches--all designed to give us a leg up on the maverick economic beast we are riding.

But about the time we're on our third or fourth book, we'll probably have a basic query: How does a person make sense out of all the conflicting suggestions? There's no consistent pattern of advice. We hear a multitude of voices, each declaiming a way toward economic salvation.

Suddenly, it gets even lonelier. We begin to realize that everybody has a theory these days, the way everybody had a hot stock tip in the Twenties. One writer recommends gold; another advises against it. Both of them look good and both of them look foolish. We would've been happy to ride gold futures to over $900 an ounce last January, but we'd have been sorely pissed to be locked into the market as it fell several hundred dollars in nine weeks. One expert swears that Wall Street is ripe for picking in the Eighties; another predicts that stocks will be more speculative in nature than commodities in this decade. Both of them sound reasonable: The spring of 1980 saw common stocks at relatively low prices, and it's an election year, after all, which means that the Government will do everything it can to batten down the hatches and make the economy appear sound. But then again, we all know that the real price action is going to be in the world's resources, the dwindling supplies, the basic foodstuffs, fuels and metals that keep American industry functioning. Somehow, a glowing annual report from the XYZ Corporation can't match the anxiety that hovers like an inconsistent fever over the silver market.

What follows is a sampling of the books on investment advice that are currently rattling around in the American consciousness. No doubt, the authors' intentions are good, but that doesn't take away from the fact that we are being handed mixed signals, contradictions, puzzlements. The advice being marketed lacks consistency; these people can't all be right. And the Eighties will surely be more than an instant replay of the Seventies.

So take a look at the range and variety of proposed strategies and try to remember not to act on all of them: You'll not only go broke, you'll go crazy, as well.

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How to Prosper During the Coming Bad Years, by Howard J. Ruff, is still on some best-seller lists. Ruff gained great influence in the media, and for good reason: He called a lot of the shots for the Seventies. He (along with other writer/experts such as James Dines and Harry Browne) predicted the rise in gold and silver values, the rush toward collectibles (antiques, stamps, etc.) and coins and small-town real estate. Ruff, a Mormon, also preaches self-sufficiency: Have dehydrated food on hand, keep some gold coins and diamonds ready in case of total civil breakdown, prepare to dump your city holdings and move out to the country. Ruff is quite pessimistic about the stock market: "If you adjust stock prices for inflation, in order to regain the purchasing power equivalent of the 1966 Dow Jones today, the Dow Jones would have to go to almost 2000." Ruff is preparing a book that is not available as of this writing, but it will probably follow some of the predictions in his newsletter The Ruff Times: The year 1980 will see interest rates and inflation falling sharply after a fast but deep recession, only to be followed by runaway inflation in 1981; plummeting real-estate prices in the big cities and small towns; mandatory wage and price controls; and perhaps the last opportunities to buy gold and silver.

Bottom Line

Gold: Yes

Stocks: No

Real estate: Only in small towns

Collectibles: Yes

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The Inflation-Beater's Investment Guide, Winning Strategies for the 1980s, by Burton Malkiel, has a chapter heading that tells most of Malkiel's story: "Common Stocks: The Best Inflation Hedge for the 1980s," and goes on to say, "Between 1968 and 1979, the annual rate of return on common stocks was a paltry 3.1 percent. During the 1980s, I believe that figure will be around 15 percent--perhaps even more." Malkiel, chairman of the economics department at Princeton University, is not in favor of gold and diamonds and collectibles as investments. He takes the gold bugs to task, writing: "The problem is that gold . . . does not yield dividends and can be costly to store and protect . . . buying gold at today's prices is simply not in my judgment a rational investment decision." Malkiel dismisses diamonds ("There are enormous risks and disadvantages for individual investors") and says of stamps and art objects and Tiffany lamps and Oriental carpets: "Contrary to popular belief, the inflation-adjusted value of art objects and collectibles does not generally increase. There are also enormous commissions when you buy and sell."

In case you haven't noticed. Malkiel's advice contradicts Ruffs in almost every major investment area. You will also be sorry to hear that when you read both books, each makes impeccable sense and seems chiseled in logic and business savvy.

Bottom Line

Gold: No Stocks: Yes, with vigor Real estate: Yes Collectibles: No

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OK, you think you're confused now? Wait until you read Morton Shulman's How to Invest Your Money & Profit from Inflation. Shulman titles his first chapter "The Old Virtues Are Dead." By that he means that traditional investment such as savings accounts. Government bonds, life insurance, corporation bonds and mortgage purchases are now defunct, given the inevitable rising cost of living. Shulman says that inflation is here to stay. And he is convinced that the stock market is an ineffective, possibly absurd way to hedge your bets: "Well, what stocks are worth buying? Only those that are inflation-proof, and there aren't many of those." Speaking of expert advice, Shulman is contemptuous of stock advisory services and he bluntly charges that all is not legitimate on Wall Street: "You are running the risk of being taken by traders who take illegal advantage of insider information," he says, and concludes, "As for advisory services, forget them . . . the average investor finds it impossible to tell the good from the bad." Shulman is into equity, things, for his money-making. He recommends wine and art and antiques and gold and currencies and real estate. He tells of purchases he made that look very good now, and his book includes photocopies of the profits he made on his ventures. Most importantly, Shulman is willing to commit himself as being correct in his predictions. Inflation, he admits, may rise and fall, "but I know that five years down the road, no one following this advice will regret it."

For those of you not already choked up by the fog of contradiction, please note that Shulman manages to counter both Ruff and Malkiel; he is obviously opposed to Malkiel's optimism about the stock market and he would probably argue with Ruff's low opinion of the value of investing in city and suburban real estate.

Bottom Line

Gold: Yes Stocks: No Real estate: Yes Collectibles: Yes

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Some of you probably think you see a pattern in spite of the contradictions, right? You've been checking the summaries like good accountants and you've noticed that real estate seems like a pretty popular recommendation. Howard Ruff is hesitant about it, but even he still opts for real-estate investment in rural areas.

Well, just wait until you read The Coming Real Estate Crash, by Messrs. Gray Emerson Cardiff and John Wesley English. These two gentlemen make a very good case for the end of the real-estate boom. All real estate: city and country, farm land and suburb and inner urban. Based on some solid historical analogies and some good research, their message is that you'd better get your money out of real estate while you can: "Clearly." they write, "we would be much better off at this point by selling real estate and buying stocks." Their scenario for the upcoming crash is frightening: major difficulties for banks, savings and loans, the building trades, farmers and, finally, the Government itself. At the end of this dark forecast, Cardiff and English predict that "the Federal Government will be regulating real estate. This regulation will be aimed at preventing another boom. However, even without Government regulation, there will not be another boom in real estate until a new generation [of consumers] matures, untouched by this crash."

If you don't like what you hear from the Cardiff and English duet, you might turn right around and listen to a solo from either Robert G. Allen (Nothing Down) or Albert J. Lowry (How You Can Become Financially Independent by Investing in Real Estate). Lowry's optimistic vision of real-estate investment has been on the best-seller lists for months.

Bottom Line (Cardiff and English)

Gold: Yes Stocks: Yes Real estate: No Collectibles: Not mentioned

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Wait a minute! Don't sell your house yet! Read Moneypower: How to Make Inflation Make You Rich, by Ben Stein (with Herbert Stein). Real estate is the way to go and stocks are deadly. Listen: "We want to own something that rises in value faster than money declines, so that we are actually making money on inflation. For that wonderful goal, a private home is made to order . . . a fine inflation hedge." The Steins suggest that you "borrow, borrow, borrow" to buy a second home that you rent out. How about the stock market? "Unless you have a special situation--a real one, where your wife's sister is married to the board chairman, not a false one, where your stockbroker says his research department knows something that everybody else at Harry's American Bar-knows--stay away from the stock market."

Bottom Line

Gold: Yes Stocks: No Real estate: Yes Collectibles: No

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Now, we never promised you a rose garden, did we? We began this by saying that the advice we are getting in the bookstores is conflicting and confusing and that the more we read, the more wary we become of all prognostications.

But speaking of promises, let's take a brief look at a book with the modest title of Double Your Dollars in 600 Days Investing and Trading in Gold, Silver, Diamonds, Platinum, Tungsten and Moly. Moly is not a lady's name, by the way, but the abbreviated form for the metallic element molybdenum. Ira U. Cobleigh is the author of this plan, and he has written an informative book, discussing such details as "how to invest--what to buy, whom to buy from and when to buy and sell." (Where was he when the Hunt brothers needed him?)

Cobleigh doesn't think you can afford to stay with the standard, old-fashioned investments: "We do not believe that inflation will be brought under control until sometime in the 1980s," he writes. "Meanwhile, financial assets such as passbook savings accounts, life insurance, bonds, pensions and paper money will continue to decline in buying power." Cobleigh is strictly a metals and minerals man, and he seems to include almost all of them in his survey, closing his book with a list of minerals to watch in the future: copper, lead, zinc and nickel.

Bottom Line

Gold: Yes Stocks: Mining and precious-metals issues only Real estate: Only what's under it Collectibles: Not mentioned

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Ashby Bladen isn't exactly against gold and silver. But in his book How to Cope with the Developing Financial Crisis, he does warn the reader that "there are no riskless investments . . . and no long-term investments left." Gold and silver are OK, he allows, but only if you can get them at a low price in a calm market. (By implication, that may leave out gold and silver for the foreseeable future.)

Bladen's best advice comes in one sentence: "Endemic inflation produces steadily increasing instability and forces you to live by your wits." We might add that endemic inflation forces us to read by our wits and listen by our wits, too. There's an awful lot of advice out there for the purchasing--but how are we to sort out the accurate from the inaccurate, the prescient from the blind?

Bladen writes of the coming crash in house prices. "Considered purely as financial assets," he says, "I would much rather own stocks than houses." He specifically recommends electric utility securities. And, surprisingly, he values savings: "At the very least, we are almost certainly headed for a major financial crisis in the not too distant future, in which liquid savings will prove invaluable."

Bottom Line

Gold and silver: Only when low-priced

Stocks: Yes

Real estate: No

Collectibles: Not mentioned

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If you want to have some fun--some wheeler-dealer fun, that is, with advice the Mad Hatter might give at an afternoon tea--read The Penny Capitalist: How to Build a Small Fortune from Next to Nothing, by Algernon Horatio. That's a pen name, as if you didn't know. There's a picture of Horatio on the back flap. It's hard to tell what he really looks like, because he's wearing sunglasses and a full head of hair that might be a rug and a mustache and goatee that are probably real, but then again, maybe they're not. (See what financial roulette does to our psyches? We don't trust anything.)

In any case, Horatio, who claims he teaches at a university, is an advisor who praises what he calls "the world of alternative investing." He means that you can build a small fortune by myriad investments that he has tried himself. He's particularly fond of garage sales and things found in attics, but his list of successful ventures is as rich as a poor man's fantasy. He suggests you invest in such things as jade, bull semen, empty oak whiskey barrels, whiskey, Navaho rugs, Mexican retablos (religious paintings of saints on either tin or copper), Victorian quilts, copper kitchen implements, old cars, paintings and prints, as well as various forms of foreign investment, including foreign stocks and bonds and income accounts and land.

Horatio isn't fond of the stock market. He sees it as peopled by "an endless chain of insiders," and he points out that some sample portfolios printed in the April 1974 issue of Money magazine would have lost you between 41 and 65 percent of your buying power had you held the portfolios intact for the next four years of inflation. Horatio also warns us against franchises, mutual funds and fixed-dollar investments such as bonds and savings accounts.

Bottom Line

Gold: Yes

Stocks: No

Real estate: Yes

Collectibles: Yes

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The beat goes on. David Dreman, author of Contrarian Investment Strategy: The Psychology of Stock Market Success, sees evidence of "a widespread failure of modern money management, in spite of the investment professionals' training, intelligence and experience, as well as the best research money can buy. . . . The most sophisticated generation of financial managers ever has demonstrated an incapacity to manage money effectively." It should be noted that Dreman is speaking primarily about stock-market money managers, but the quote seems to fit others as well.

There are hundreds of books, articles, newspaper columns, investment advisory letters and special reports. You can hear whatever you want to hear. Worse, you can make a case for it. The so-called experts are sorely divided over mos categories of potential investment (with the possible exception of gold and silver, but, as you can find above, there are good arguments against them as well). Our present economy seems totally founded on speculation. It's up for grabs, and even the people who make it their profession to advise other people about finances have poor track records.

You probably think we have a solution to this problem, don't you? After all, would Playboy let you down? Well, we hope not. About all we can say is that there are lots of markets the smart investor is staying out of these days, and maybe the bookstore is one of them.

On the other hand, we understand how hard it is for most people to get any good financial advisor to sit down and discuss investments of less than $100,000--the commission just isn't there. So you turn to books. Since there's so much advice out there, and since you can hear anything you want to hear, you should at least choose an investment strategy that fits your temperament. For example, if you place a high premium on security, don't let somebody's provocative chapter on how to make a killing in the commodities market persuade you to throw everything you've got into coffee futures. One man's killing is usually another man's massacre.

But that, of course, is advice you can get elsewhere, and if there's anything we can do for you, it's give you some investment tips you won't find duplicated--or, worse, refuted--in the very next book you pick up. The lack of confusion alone ought to be worth something. One further word: As all investment books say somewhere toward either preface or conclusion, we claim no responsibility for any losses you may incur by following this advice. . . .

Hot Tips For the Eighties

• Talk an oil sheik into adopting you, with the understanding that he'll send you to law school so you can probate his will.

• Buy a lot of air. That's right: air. Surely, one day soon, we'll be told that the air we breathe is not ours by natural right but has to be purchased from one transnational corporation or another. But now, or the air you breathe may not be your own.

• Save your plastic spoons. Sometime in the future, they'll be rare collectibles. Don't forget to wash them, though.

• Learn to manipulate time. This should be done only in short bursts--just enough so you can see what's ahead and then come back to time present and corner the market in it. Your best chance to learn how to manipulate time is to volunteer as a guinea pig in a cyclotron. Let them zap you and see what happens as your particles glow. You might learn something. Be sure to make a will first.

• Start a national franchise in something that is very convenient and unnecessary--for example, a Vet & Pet Photo Stand for parking lots and shopping malls. Drop your sick pet off for day care at the same time you leave photos to be developed. This should work particularly well in the West and the South.

• Start a bank. This is self-explanatory.

• Run for high political office. So is this.

• Invent a total energy system for the nation and the world that can be activated only by your voiceprint and no one else's. This should give you a lot of power and make you rich. One suggestion, however: Try not to let Government agents tape-record your voice and then duplicate it. That could lead to bankruptcy.

• Crown yourself king of the U.S.A. and turn the IRS into an agency that can operate only under your charter. You probably won't get audited, and you'll be able to learn a lot about your neighbors.

• Live in Bogotá, work in Zurich. A recent report shows that Bogotá, Colombia, is one of the cheapest places in the world to live, but wages and salaries are highest in Zurich, Switzerland. (Interestingly, the report was published by the Union Bank of Switzerland, but let that pass.) You may have a problem with jet lag and you might have to buy an airline to make your commute economical, but practical advice like this shouldn't be ignored.

• Design an ocean plat book, dividing the ocean floor into sections 640 acres square, and auction the whole shebang off on public television. Give book bags to people who buy an underwater township.

• Don't be afraid of failure or rejection or death. This won't make you any money, but it should help you transcend the human condition.

• Write a book of investment advice. Someone is sure to buy it.

• If you meet a man named Horatio who tries to sell you some bull semen, check the credentials of both.