A few years ago we rescued an investor from a well known permabear who had sucked him in through political rants and then proceeded to demolish the account with junior gold mining stocks from Indonesia, proprietary high-cost mutual funds and all sorts of idiotic index-shorting ETFs.
When we looked at the account positions as they transferred in, my first reaction was shock and horror. I don’t know why I was surprised, the guy was doing exactly what he’d been professing to do: Investing like the end of the world was already underway.
I guess I kind of grudgingly respect that. He’s obviously an idiot, but it’s clear that he means what he says and actually believes his own bulls***. There’s worse out there.
The Financial Times takes a look at the so-called “Plastic Bears” – people who use scare-mongering techniques to get attention for themselves and frighten investors into their arms, only to turn around and invest in the very instruments they’re calling for a crash in. As the columnist points out, there’s very little risk for them in adopting this strategy. If the market does crash, they look right, and if it doesn’t, they’ve made people money.
Here’s Miles Johnson, the FT’s capital markets editor, on how the scam works:
Plastic bears abound today. There are well-known investors and fund houses that will frequently raise their concerns about bubbles in various markets in research notes, or when they are on TV, but then hold large amounts of the asset class they claim to hate. Very few are actually short the market or in cash.
The pay-off for this marketing strategy, as they say in trading, is asymmetric. Unlike the market cheerleader who will be excoriated when there is a crash, if the apocalypse they predict never comes to pass, no one will remember. Further, if it does, then they will become overnight media heroes, and billions of dollars of client funds will flow their way.
Meanwhile, the mom ‘n’ pop investors who listen to these comments may understandably be moved to liquidate their retirement accounts, buy gold or otherwise engage in the sorts of short-term trading that damages their interests.
There’s something admirable about the gamesmanship on display here.
Perhaps I should do a YouTube video about how, say, ETFs are weapons of mass destruction, or how at any moment your entire retirement savings are going to be vaporized by high frequency trading. I could post a link to an online account form right under the clip, with a landing page indicating that I alone can protect you from the destruction to come.
In the event that my most strident warnings turn out not to have been helpful, I can always point to the capital gains I’ve generated for you by investing like a normal person, not some sort of wild-eyed lunatic pacing the digital sidewalks wearing my hysterical blog posts like a sandwich sign.
Or maybe it’s best that I don’t. Because words matter and people are affected by them.