There's no question that the financial media — and the so-called financial "gurus" that dominate the headlines — are great at drawing attention, getting ratings, and garnering fans. But blindly following the advice of these investment professionals, or duplicating their published investment strategies, doesn't always lead to desired results.
Is there ever a good time to imitate the financial pundits you see on TV? There's certainly a long precedent for the practice of following the advice of well-known
investors. After all, it's human nature to see someone achieve success and then strive to gain the same results for oneself.
Here's why imitation in investing isn't always the most rational course of action.
Imitating Famous Investment Professionals: Strategy or Folly?
Let's use the example of Warren Buffett. Consistently described as one of the world's most successful investors, Mr. Buffett's investing style has practically grown into an industry all its own, as evidenced by the number of books for sale sporting his name. But rather than simply mimicking the "Oracle of Omaha's" investments, it may be more valuable for would-be Buffetts to learn about the man's investment philosophy and incorporate that knowledge into their own financial planning strategies. Some of Buffett's investment successes could be emulated by most investors, but others...not so much, as pointed out by Jason Zweig of the Wall Street Journal.
But in more general terms, consider that by the time Buffett's investing advice trickles down through the media and reaches the ears of the average investor, it's not exactly breaking news anymore. In fact, most information about what Buffet is buying doesn't become public knowledge until months after the purchase was made; in other words, several weeks after the close of a quarter. By that time, the sale's been made, the opportunity has likely passed, and Buffet's on to the next deal.
And this brings us to our next point: nothing replaces your own due diligence when it comes to determining whether your portfolio is appropriately diversified, whether it matches your level of tolerance for risk, and whether your asset allocation is aligned with your personal financial and life goals. When making investment decisions, it's essential to understand your own time horizon, your goals, and the amount of risk you can comfortably (and calmly) bear — all of which are individual characteristics.
Your Comprehensive Financial Plan Should be Your Own
That said, there's absolutely no reason to reinvent the wheel. If certain financial strategies are working for someone, whether they have their own investing show on TV or not, it's fine to look into their investing strategies. But again, take it with a grain of salt, as each investor's situation is different.
Keep in mind that the financial pundits on TV are first and foremost entertainers. Their time horizons are likely much, much shorter than yours, because a show about index funds invested over the course of 20 years just wouldn't be as entertaining as a fast-moving show about stock picking and market timing. Reacting to every up and down of the market simply makes for better TV.
In real life, wealth strategies based on long-term investments with properly diversified portfolios have historically resulted in better returns.
There's also no reason to go it alone. Instead of turning to TV personalities and celebrity financial pundits, work with a trusted wealth advisor. Together, you can develop a diversified portfolio that's tailored for your specific needs — and grounded in reality.