Excerpt from Chapter 5 of Nobody's Fool
"Taking Stock of Stocks"

In an earlier time many schools taught "civics," now a part of the social studies curriculum.  Only one fragment from that high school course remains in my memory—the purpose of a public corporation.  The test question required as the approved response: an organization in which many persons pool small sums of money in amassing a large amount, enabling the group to pursue a mutually profitable endeavor, for the benefit of all, in which none alone might have engaged.  As a sixteen-year-old with no other information, that seemed reasonable at the time.  Over the years it became clear the public corporation serves a variety of purposes for diverse interests.  To the corporate officer or director it is an opportunity to collect bonuses and receive options to be exercised at a profit.  To a middle management employee it is a convenient place to exchange memoranda and process paper while deriving a living wage.  To the director of internal revenue it represents a fine source of double taxation.  To the investing public it is little more than a stock certificate, which may rise in value while providing a quarterly dividend.  It is to this last group that we shall concentrate our attention.

Tune in, if you will, to one of the many radio or television talk shows that feature a financial authority dispensing advice to the unseen audience.  Often the public is invited to phone in questions.  At other times the authority simply discourses at length on one or more subjects.  This is the world of the celebrity investment advisor—an exercise in capitalism at its most pretentious.

Under the circumstances, this sort of mass market financial counseling, though long in coming, was a phenomenon bound to happen.  Whatever praise or criticism you may direct at the American public school system, one thing must be acknowledged: The handling of personal financial affairs is not a subject to which much attention is devoted.  Whatever the average American knows about investing money did not come from the classroom.  This is understandable, of course, if only because the typical classroom teacher is equally mystified by the world of money.

If you pay much attention to the investment advice provided by the media experts, you’ll notice two things.  The first is that the subjects covered tend to repeat regularly.  The second, and even more notable, is that the views offered by the majority of analysts are predictable.  A conventional wisdom exists into which each problem is encased.  This may be acceptable for generally sound advice, but often this is not the case.  However, of one thing I am convinced: A recognized authority need not always be correct, but he or she must always be certain.  Perhaps my underlying aversion to the omniscient investment advisor is the inherent contradiction of human nature.  I believe that no one who truly knows what the financial future holds willingly divulges that information to the general public.

In recent years the pundits’ advice is found in a variety of settings.  In addition to radio and television, many are now recognized authors, with their books aggressively advertised and prominently displayed.  In addition, their reach now spreads to the lecture circuit, including seminars and workshops; to newsletters, both postal (snail mail) and e-mail; and to colorful and elaborate websites.  Thanks to effective marketing campaigns, some are well known, with their advice widely sought and presumably followed.  Many of the names you recognize, such as Louis Rukeyser, The Motley Fools, The Beardstown Ladies, and Wade Cook, if only for their notoriety.  Though most tend to be entertaining, you must weigh the advice of each carefully—with a healthy dose of skepticism—while you try not to forget the classic definition of a celebrity: someone who is famous for being famous.

Of all the media advisors, there is one I consider worth listening to.  His name is Bob Brinker, and his syndicated radio show, dating back to 1985, broadcasts several hours each Saturday and Sunday across the nation (See Resources).  Without a doubt, he is head and shoulders above his competitors.  His refreshing approach is one that cautions prudence and recognizes inherent value.  Both the monthly newsletter he issues, Marketimer, and his website spark my interest, with the sound practical advice he gives to callers well worth the time spent.  I tune in on a regular basis.

Irrespective of the basic soundness of the investment advisory profession itself, the overwhelming fixation of most practitioners is on common stocks, often consolidated in one or more mutual funds.  There are legitimate reasons why the common stock approach makes sense for the advisors, if not always for their clients.  The primary reason is that common stock in a public corporation now occupies an anointed status within both the investment and the legal communities.  Within most limits, an advisor is held blameless if recommendations on this investment vehicle prove less than astute.  And, as expected, with common stocks widely touted, natural client resistance is reduced.

Whatever else may be said about common stocks (and there is much), their general acceptability seems established in the realm of folklore.  There is an analogy which comes to mind of another American tradition: that the best food in the diners and cafes along the nation's highways is found where there are the greatest number of parked trucks.  It is rumored that someone once polled the thirty-five truck drivers eating lunch at one favorite truck stop along old Route 66 outside Albuquerque, New Mexico, to see why they preferred that cafe.  The results may seem contrary to expectations.  One driver owned a small interest in the cafe; a second dated the morning shift waitress; a third noted he always got sleepy at that point on his run; and the other thirty-two said: "Because I always see a lot of trucks parked here, and you know that means the food must be good."

So let us take a closer look at some of the standard recommendations passed on to the stock-investing public by the "experts" to see if they square with reality.