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My Worst Financial Advice

July 30th, 2008 ·

The blogger who writes the Canadian Personal Financial Blog confessed to the worst advice he had given and challenged other bloggers to do the same. I didn’t have to think too hard on this one – I had committed a blooper that I regret to this day.

When I first started investing, I read a lot of books (regrettably none from the recommended list) but for some reason, I was most attracted by the Motley Fool books. I mean, if guys wearing joker hats are making a killing on Iomega and writing books about how easy pickings can be had in the stock market, really how hard can this investing thing be? If you recall those go-go days, the Motley Fool maintained a portfolio of what they called “Rule Makers”, composed of mostly high-tech stocks like Cisco (CSCO), Microsoft (MSFT), Intel (INTC) etc.

In my first year as an investor, I bought a venture capital fund and the next year, I did my “research” and picked JDS-Uniphase (JDSU) and Yahoo! (YHOO) from the Rule Maker portfolio. When a friend of mine asked for suggestions for investing his RRSP contribution, in a stunning case of the blind leading the blind, I recommended that he buy JDSU. And, that’s what he did and the stock even went up for a while after we bought it, only to fall off a cliff and never recover.

I didn’t come off too badly from my initial forays into stock picking – out of sheer dumb luck, I made a profit on Yahoo! and dumped JDSU after a few years. My friend, on the other hand, still holds the JDS shares and would be lucky to cover the trading commissions when selling. That’s not even the sad part: scarred by his initial experience with stocks, my friend gave up on equities entirely, stuck his savings in money market funds and missed the tremendous recovery from the bear market lows.

Today, I avoid giving financial advice of any sort to friends and relatives. Even when I’m sure of something, I just say how I handle my own situation and leave it at that. It is awful to feel responsible when the consequence of your advice goes bad.

Note: Many thanks to Larry MacDonald for mentioning this blog in his article titled Seven essential websites for becoming a better investor in Globe Investor Magazine. Needless to say, we feel honoured.

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15 responses so far ↓

  • 1 NN // Jul 30, 2008 at 10:53 pm

    A blooper indeed. I wouldn’t feel too guilty though - this was probably one of the best lessons both you and your friend could have learned in a lifetime of investing. The fact that your friend divested after the crash probably taught him/her another valuable lesson, I would hope. Advice is always just that - every individual has the responsibility to critically analyze the advice he/she receives, and then to make their own decision. The only ‘friends’ that could (should?) feel any guilt for bad advice are the ones charging us 1.5-2.0% for it annually…

  • 2 Sam // Jul 31, 2008 at 3:24 am

    I have established a personal rule for friends who are asking for financial advice on stocks. If they’re gonna invest more than $1k, I give them list of possible stocks they may want, but I also tell them don’t blame me if it didn’t workout the way it should*laughs*..any amount higher than that, I just tell them what I would do but I don’t encourage them to do the same…

  • 3 Big Cajun Man // Jul 31, 2008 at 7:24 am

    Thanks for the link, for the Carnival of Catastrophic Financial Advice on Friday!

  • 4 Million Dollar Journey // Jul 31, 2008 at 7:32 am

    Giving stock pick advice is probably the worst kind of advice to give. I avoid it as much as possible these days. On another note, congrats on the coverage! Well deserved.

  • 5 Xenko // Jul 31, 2008 at 10:38 am

    “Giving stock pick advice is probably the worst kind of advice to give.”

    Depends if you are getting paid a few % a year to do it, and whether your moral compass is functioning (or not)!

  • 6 Matt // Jul 31, 2008 at 12:57 pm

    Somehow at a young age I learned that giving people money advice is a risky thing. Hell even talking to them about money can be problematic. So as a general rule I don’t give advice and if I do its typically to go find a good financial adviser.

  • 7 Double // Aug 1, 2008 at 12:02 am

    An elderly woman at my previous job asked me to have a look at her mutual funds. I recommended she move her funds around as the ones she had were underperforming. Not too long after the rebalance, the stock market dived and so did her portfolio.

    However, her previous port would have dived also but that did not stop me from feeling very guilty.

  • 8 Phil S // Aug 1, 2008 at 12:03 am

    CC. Like you, I run my mother’s brokerage account for her and I tried to mirror some of the stocks I have in my own account. Unfortunately, that included Coventree, which seems like a company that is going to zero, except for the outside chance that it may get acquired by somebody. The unfortunate part is that my mother doesn’t have a huge capital gain to offset this loss against, so I’m hoping that one of the other stocks I have for her pops sometime when Coventree gets liquidated. Ugh.

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  • 13 Shadox // Aug 5, 2008 at 2:51 am

    Ouch!

    This is a good reminder for all of who get asked for investment advice. You can comfort yourself knowing that the “pros” don’t do a much better job - go index investing!

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