Bartiromo: I’m not a money manager, but I can tell you what the conventional wisdom is. The younger you are, the more risk you can take on. If you’re just out of college, you can have a lot more exposure to stocks than what most financial planners recommend to someone close to retirement, the simple reason being you have a much longer-term horizon until when you need that money.
Using the Internet to Invest, Wall Street's Conflict of Interest, the Shortcomings of Professional Money Managers & Energy Prices and the Economy
JK: An important part of any investment strategy is research - you mentioned that you use the Internet as a tool – how so, and what are a few of your favorite research sites (besides your husband’s Individualinvestor.com)Bartiromo: I’m frequently on the Internet, digging up information about companies and checking the activities of particular stocks and industry sectors. The amount of data and analysis available for free is a true example of how the information explosion has leveled the playing field for individual investors. That said, one of my favorite sites is, as yet, not free. Bridge Information Systems (www.bridge.com) gives me access to real-time exchange data, including equities and commodities; fundamental stock data, including tabular information and earnings estimates; technical charting for all stocks; and incredible amount of news, ranging from daily market reviews for G7 countries to press releases for individual companies. You can, however, replicate many of their services for nothing. It's a combination of the more than 30 research sites I mention in the book’s appendix.
JK: In recent Congressional hearings, Wall Street analysts have essentially been accused of failing to warn investors to sell their equities in order to attract the lucrative investment banking business of large corporations. Is this a widespread problem? What is the solution?
Bartiromo: There is a fundamental conflict of interest on the part of analysts who recommend stocks of the companies that their firms do business with. Until we have a change in the way Wall Street works, this will continue to be an issue. From an investor’s standpoint, the best you can do is be aware of it.
As a reporter, I approach every situation knowing that everyone has his or her own agenda. It’s not a bad thing; it’s just a fact. Investors need to recognize that not every analyst is dishonest but there are potential conflict-of-interest issues to be aware of. Rather than basing your investment decisions entirely on an analyst’s recommendation, you should take analysts’ recommendations as just one piece of the puzzle. It’s also worth taking note of the research from analysts’ firms that do not do investment banking. In the book, we discuss several of those firms, including Wit Soundview, Sanford Bernstein and others.
JK: Why is it that professional money managers constantly under-perform the Dow Jones Industrial Average or the S&P 500, which is essentially unmanaged? Isn’t this one of the biggest arguments against the “smart” money?
Bartiromo: Yes, it is. One of the reasons is that money managers are gauged on a quarterly basis, so every three months their record is compared to the S&P Index. And, frankly, until the last couple of years, the market has been on a bull run and the major indexes have taken off, so individual money managers who did not mimic the S&P and the Dow have fallen short. But that’s why an individual can have a leg up on a professional, because the professional is trying to gauge himself against the S&P 500 every quarter whereas the individual has the freedom to take the long view.
JK: What is the relationship between oil prices and the economy as a whole?
Bartiromo: One of the key points about oil and energy prices is the impact that this group has on the entire market. The higher the price of oil, the more a negative factor it can be not just on the obvious groups such as automotive, airlines, transportation and utilities, but on almost all industries. Extrapolating from there, higher oil prices mean that any industry that uses energy has to pay more for it. They often pass those price hikes on to their customers, who pass them on to the consumer, which adversely affects the economy. On a smaller and more individual sense, if you or me go to the gas station to fill up our car and it costs us much more than we expected, it will zap our discretionary income. We won’t have the extra money to buy that washing machine or new winter coat-all big ticket items that are important to economic growth. So if it costs more for all of us, there is a risk that consumers overall will stop spending on other things similar to corporations also slowing down spending, so oil is a very important component of economic growth.
