Specialists plays an important role in society, disseminating expert knowledge to those without time or inclination to become the same. There are gurus in all areas of life, from fitness to real estate to finance. Unfortunately, the predictions and advice of authorities in this last category have a less than stellar track record. Looking into the future with rose-colored glasses, finance gurus have led their followers into trouble time and time again – especially in the years preceding our current recession. Others didn’t exactly court disaster but rather, they emphatically gave dubious or downright wrong advice. Should anyone establish a financial guru “hall of shame”, these are our 12 inductees.
The exuberant host of CNBC’s Mad Money had his role in the current stock market meltdown illuminated in a March 2009 interview with Jon Stewart on The Daily Show. Abandoning his jokes for an uncharacteristically serious interview, Stewart skewered Cramer from pillar to post, chiefly for recommending that Americans invest their 401(k) and pension funds in firms like AIG and Bear Stearns that were known to be in serious financial trouble. Cramer justified it by claiming the CEOs lied to him, while Stewart countered that taking those lies at face value and reporting them as rock-solid investment wisdom was irresponsible. The Huffington Post has the entire three part interview up for easy viewing on its website.
While not a “guru” in the televised or published author sense, Bernard Madoff nevertheless assumed that role to all of the many individuals and corporations he persuaded to invest with him. In terms of bare, crass deception, Madoff stands tall above everyone on this list. The disgraced ex-businessman orchestrated what Reuters calls, “…Wall Street’s biggest and most brazen investment fraud”, that resulted in the swindling at least $50 billion from numerous investors The most chilling aspect was that the biggest victim turned out to be New York Mets owner Fred Wilpon, a childhood friend of Madoff’s. In Madoff’s scam, Wilpon is estimated to have lost as much as $300 million according to the New York Daily News.
Harvard MBA John T. Reed sums up the case against Kiyosaki in the first paragraph of his book review:
Rich Dad, Poor Dad is one of the dumbest financial advice books I have ever read. It contains many factual errors and numerous extremely unlikely accounts of events that supposedly occurred. Rich Dad, Poor Dad contains much wrong advice, much bad advice, some dangerous advice, and virtually no good advice. [emphasis original]
Reed goes on to reveal many illogical and harmful notions promulgated by Kiyosaki, including, “…if you’re gonna go broke, go broke big” (the correct advice is “don’t go broke”) and that, “…the reason you want to have rich friends” is to become privy to inside stock information (felony violation of insider trading laws.) Other gems of wisdom include using “weasel clauses” in your contracts by naming your cat is a silent partner and attempting to write off health club expenses on your tax return (tax fraud). Reed quotes a reader e-mail stating that the reader’s 17 year old son has decided, based on Kiyosaki’s bashing of education, not to attend college or study anymore. Interestingly, Kiyosaki was unknown in the financial community, and did not begin selling books in any serious quantity until Amway distributors picked up his book.
Financial experts are rightly expected to be on the up and up regarding their own money before dispensing advice and suggestions to others. So it was quite alarming when Wade Cook was indicted and later sentenced in 2007 to 88 months in prison for tax evasion and obstructing a tax investigation between 1998-1999. He was also ordered to pay $3.5 million in unreported taxes. But Wade’s misconduct appears to stretch back even further. According to the Seattle Post-Intelligencer, Cook’s sentencing took into account, “…pre-sentencing reports that in 1990, Cook was indicted in Arizona on 18 charges of fraudulently selling unregistered securities and conducting illegal enterprises.” Specifically, the FTC had taken action against Cook in 14 states for, “…improperly taking money from investors” and imposed penalties totaling $2.7 million. At the height of its success, Wade Cook Financial Corp. raked in over $100 million in annual revenue selling seminars and home-study courses on investment and tax topics, employing 550 people.
No one can deny the massive success Donald Trump has enjoyed personally. But The Donald” has not been of much help to the average Joe. One of Trump’s most recent books Why We Want You To Be Rich (co-authored with Robert Kiyosaki) pitches, of all things, multi-level marketing as the way to learn business skills and achieve financial independence. (Maybe they should ask Bernie Madoff’s victims their opinion on MLM.) This is dubious advice at best, as MLM’s 90%+ failure rate is widely documented. TheMLMFile.com elaborates with some frightening conclusions:
“It is true that something like four out of five small businesses (about 80%) fail in the first five years of operation. It is also true that somewhere around 99.5% of MLM-ers fail in the first two years. Distributor failure rate for MLM is generally around 60% per annum, meaning that the “best” MLM companies lose their entire distributor base in something under every two years.”[emphasis original]
The Wall Street Journal panned the book in a review entitled “Rich Men, Poor Advice: Their Book is Hot, But Their Financial Tips Aren’t.” And let’s not forget Trump’s repeated run-ins with bankruptcy, including one in 1992 that forced him to give up 49% of the Trump Plaza Hotel to five different lenders, according to the New York Times. Perhaps we should hesitate to take financial advice from a man apparently dumb (or devious) enough to partner with Robert Kiyosaki and is more experienced with bankruptcy than the most Americans.
While all the current media coverage centers on the 2009 recession, past downturns had their share of misguided finance gurus, too. One of them is James Glassman, who in 1999 (a year before the dot come bubble burst) famously said “We’re going to reach a point where stocks are correctly priced, and we think that’s 36,000 … It’s not a bubble. Far from it. The stock market is undervalued.” As USNews states, the typical price to earnings ratio of dot coms were outrageous, sometimes over 40. Glassman also authored the book Dow 36,000 which falsely predicted that the stock market was undervalued and would triple within a few years.
The last thing investors should have been told in early 2000 was that the stock market was just fine. Nevertheless, Larry Kudlow assuaged investors’ fear by telling them that, “…this correction will run its course until the middle of the year. Then things will pick up again, because not even Greenspan can stop the Internet economy.” Anyone who invested based on this advice took part in the $5 trillion bath Wall Street took on tech stocks from March to October of that same year, according to TechRepublic. How Kudlow could have made such a prediction with a straight face is beyond us.
Some would be puzzled by Orman’s inclusion on this list. As a financial authority with her own TV show and a legion of best-selling books, it may seem odd to criticize her. But she is far from blameless when it comes to gurus with false predictions and questionable advice. BadMoneyAdvice.com lambasted Orman for using her celebrity to, “…bring her vast audience fairly mediocre and amateurish advice.” Specifically, the author takes Orman to task for breathlessly telling us all how great of an idea it was to get adjustable-rate mortgages in the years preceding the sub-prime crises. TheBigMoney.com notes that Orman also holds most of her own money in municipal bonds while advising readers to stash theirs in stocks. Finally, USNews remembers Orman’s infamous Janurary 2001 statement that QQQ was “a buy” so long as you invested using month by month dollar cost averaging when, in fact, the stock’s value dropped over 60% by October 2002.
Anyone willing to cut Larry Kudlow some slack for making his Pollyanna-esque prediction so early in 2000 will have a tough time excusing CNN‘s Myron Kandel, who was so inexplicably optimistic about the market that he said, “…the bottom line is, before the end of the year, the Nasdaq and Dow will be at new record highs” in April, according to MarketWatch. As late as September of the same year, Kandel apparently also predicted the market would rally to 12,000 before Election Day. Needless to say, both of these prognostications were so far off the mark as to make one fear for Kandel’s sanity.
Some analysts take a cautious tone with their predictions, being careful to couch them in vague language so critics have difficulty sticking it to them if the prediction is a bust. Not Lou Dobbs – he came right out in August 2001 and said (according to MarketWatch “Let me make it very clear. I’m a bull, on the market, on the economy. And let me repeat, I am a bull.” Unfortunately for him and anyone who invested on the wave of his giddiness, the Dow and Nasdaq both remained in the tank for another year.
While generally a respected and well-intentioned man, there can be no denying Alan Greenspan’s misread of the economy during the 2000′s. ABC News remembers his words in December 2000, prior to the housing boom and bust:
“…the three- to five-year average earnings projections of more than a thousand analysts, though exhibiting some signs of diminishing in recent months, have generally held firm at a very high level. Such expectations, should they persist, bode well for continued strength in capital accumulation and sustained elevated growth of structural productivity over the longer term.”
This speech took on new significance when in October 2008, Greenspan admitted that he had “found a flaw” in his economic philosophy and was “partially wrong” in his management of the Fed, according to the UK newspaper Guardian.
Now that Lehman Brothers’ central role in the 2008/2009 market debacle is clear, Lehman strategist Jeffrey Applegate’s 2000 statement that, “…the bulk of the correction is behind us, so now is the time to be offensive, not defensive” does indeed appear to indicate, as USNews opines, that the recovery from the dotcom bust was “a sucker’s rally.” With the kind of fraud that was going down at Lehman Brothers day in and day out, hindsight makes it very obvious why they were so bullish back then.