Outlook: Should We Even Listen Anymore?
Monday, March 2, 2009; 11:00 AM
"I write a monthly column for GQ magazine called 'Men + Money,' and I had this moment recently, as I was writing about how to rethink 401(k) allocations, when I got to the end of a paragraph and reread it and thought, 'There's a good chance that what I just wrote is precisely the wrong advice.' I tried to figure out how to acknowledge that in the column itself and say, basically, 'Please don't make any important financial decisions based on what I'm telling you to do. I honestly don't know. But also please come back and read what I have to say next month!' It wasn't the kind of column that inspired a ton of confidence, money-management-wise."
Personal finance columnist Joel Lovell was online Monday, March 2 to discuss his Outlook article on how the state of the economy has even him wondering if we should trust financial experts in the media.
A transcript follows.
Joel Lovell: Hi, everyone. Joel here. Thanks very much for reading the piece and for taking time out of your day to ask questions. I feel like I should preface all my answers by making clear that I'm not exactly a "guru," as advertised. I write a monthly money column, but I don't give specific stock tips and have never worked in finance, so many of you are likely to be more versed in Wall Street than I am. But like many others, I imagine, I'm someone who's tried to educate myself about money, and who's had a bit of a crash and haphazard course in global economics in the last several months. Okay, now that the disclaimer is out of the way, I look forward to the discussion. Thanks again.
Loudoun County, Va.: A larger point: Why do so many "personal finance journalists" in mainstream media or wherever currently have this obsession with the FAILURE of the 401(k)? If you are buying into your 401(k) every two weeks or every month, and have a 5-20 year retirement horizon, you just might get rich. I am getting TWICE AS MANY SHARES of the funds I am buying each month this year as opposed to last year.
To all financial writers and TV yackers: Stop scaring people away from this extremely safe and smart vehicle. We like it!
Joel Lovell: This is a great question, and a good example to start with, I think. My sense is that personal-finance writers are spooked in the same way that everyone else is spooked: they've watched their 401(k)s plummet in the last several months and they're worried that telling readers to keep putting money into them might be the equivalent of telling them to throw that money out the window. I suspect you're probably right--that if you have a longer horizon (I'd say more like 10-20 years) it's probably wise to not stop putting money in, because presumably (if history's any guide) we'll have rebounded and you'll have bought that stock very low. But I think it takes some real faith and grit to stare at a plummeting retirement balance and double your shares. You have to fight some natural instincts to do that.
Marco Island, Florida: People like to gamble and the stock market is the largest casino in the world. What do you think of the notion that people like Cramer dispense advice not the the investor of xyz stock and its future for the coming year or two, but to the bettors who are only interested for the next day or even minutes length of a contract? Or that people like to bet and CNBC is their tip sheet?
Joel Lovell: It's an interesting theory. I honestly can't claim to totally understand Cramer's role. He's obviously an extraordinarily smart and knowing guy, and for a lot of people he's a great entertainer, and I guess the notion of the show is that he's giving you the inside info that regular old people at home aren't normally privy to. But I'm curious how other traders think of him, and to what extent he nudges the market day in and day out. I've wanted for a long time to do a long-term story in which I start with X amount of money and follow his advice for a year and see where I end up, but that requires more disposable income than I have.
Laurel: Would you characterize your job as finding 59 more columns to write, after you've told your readers what stocks to buy and hold for the next five years?
Joel Lovell: That's very funny. As I mentioned in the intro, I don't actually advise people on what stocks to buy. But the spirit of your question still applies. I expect I'll be writing more and more about the emotional and psychological aspects of money (with the occasional purely advice-driven column) and less about how to choose an index fund or whatnot
Washington, D.C.: Why didn't many of these talking head 'experts' see this financial crisis coming? I see many of them, including Jim Cramer, dispensing advice on how the government should fix the problem. When does this become a credibility problem?
Joel Lovell: I think we're in the midst--or at the beginning--of the great unraveling of this question, and that it's a very complicated and multi-faceted one. It's not just that the talking heads didn't see it coming, but the guys on Wall Street who were intimately involved in mortgage-bundling and credit default swaps didn't see it coming--which is really astounding. I suspect the answer on all levels is that no one was taking the time to step back and get a greater perspective on where we were and what the bubble was built upon. If you're in a firm and your job and your bonus (and therefore your family and your life, however over-leveraged it might be) is dependent on you making money, you're not going to stop and think, Hey, wait, this doesn't make sense. And if you're going on TV every day to talk in an overheated fashion about how to capitalize on the market, you have the same disincentive to think in a bigger-picture way. So the answer is I think it's a huge credibility problem right now, up and down the chain, which I suspect is why so many people feel wary about how we're going to get out of this.
Vienna, Va.: Good Morning! Great article overall. I was wondering what you think of those people who offer broader financial advice than the Jim Cramers of the world. For instance, Suze Orman and the Post's own Michelle Singletary both usually avoid giving specific stock picking advice and stick more to general advice like making sure that you build up X months of living expenses before spending thousands on that vacation.
Joel Lovell: Thanks very much. If there's one line I most regret in the article, it was the somewhat unfair linking of Suze Orman and Jim Cramer. I was trying to make a broader point about the tone in which financial experts of all stripes often speak, which I find a little disconcerting these days. I imagine there are plenty of people who are talking to their own advisers and hearing them say, "Don't worry, just do X"--and on the one hand, that's maybe comforting, but on the other: "What do you mean, don't worry? I've just lost tens of thousands of dollars. I'm panicked." But I agree with you that the type of advice she's giving differs from someone telling you what stock to buy, and what she generally preaches is fiscal responsibility--get out of debt, save money, improve your credit rating--which is undeniably sound advice.
Baltimore: Who are some of the financial writers or commentators that you find to have an informed or useful take on the current financial crisis?
Joel Lovell: The single best financial writer in America is, I think, Michael Lewis--in part because he's just such a graceful writer, and in part because he knows the inner workings of Wall St so well, and in part because he's really extraordinary at making very complex ideas understandable. Beyond him, I think that Barry Ritholtz, who has a blog called "The Big Picture" (and who, I should say, often appears on CNBC) is terrific. And then for the best source of understanding where we are now, how we got here, and how we might get out--there's a team at NPR's "Planet Money" that is changing the way financial journalism is done. They're incredible.
Washington, D.C.: It seems to me that there's a mentality of collective delusion behind most of the recent financial crises. (The dot-com industry/stock market/housing market will never fail) And people just don't want to listen to the Cassandras who correctly predict what's coming in the future. It's much easier and better for ratings for MSNBC, etc. to spread happy news than forecast giant calamities.
Joel Lovell: Yes, I think you're probably right. In retrospect, I think a lot of us look back at the world a year or two or three ago and think, "Wow, how could we not have seen this coming. There was some real just-before-the-Fall-of-Rome stuff going on." But in the middle of the party, very few people want to listen the the cranks.
New York City: Two questions:
First, how and when did you get this gig and what is your background?
Second, your article yesterday was, no pun intended, on the money. I cannot tell you how many times CNBC's crew or the WSJ has told me we've hit "the bottom" or that "stocks are on sale." They've been on "sale since" the moment the Dow dropped below 14,000. In any other business these folks would slink off to some corner and lick their wounds but they keep showing up. How can we hold these folks accountable in any meaningful way?
Joel Lovell: I'll try to type fast here. My bkgrd isn't in finance. I'm a longtime editor and more recently a writer, and the idea behind my $ column was to have a guy who really hadn't paid a lot of attention to finance his whole life write about trying to change that--learning about money from square one and advising people along the way. So it's been something of a crash course, as I mentioned, and the column isn't a typical specific-investment-advice kind of column (though I do and have occasionally offered some).
As for when will folks be held accountable, it's a great question. There has been a real schizoid quality to the financial news shows, on the one hand telling us this is a buyer's market and on the other bringing on guys like Roubini, as I mentioned, who think we're heading below 6,000. Obviously "how will folks be held accountable" is a question that looms over every aspect of the bailout plan. As for the guys on TV, I don't know. Maybe they'll be held accountable if their viewership declines. But also, of course, what people choose to do with their own money is their responsibility.
The single best financial writer in America is: What about Paul Krugman, Steve Pearlstein or David Leonhardt?
Joel Lovell: Yes, definitely, all great. I was speaking in part purely from a writing perspective. But these guys are all excellent in doing the very different things they do. As is Robert Schiller (and plenty of others), who someone mentions in another post.
Augusta, Ga.: My father, a survivor of Great Depression I, said the only way to have money is to not spend it. Now we are encouraged to not save it. If we survive GDII, what sage advice might we expect to dispense?
Joel Lovell: Right, this is the paradox at the moment. For years Americans were absolutely unbelievably and now shamefully terrible at saving. That worked out very badly, and now we're all saving like never before. On the personal level, that's what we should be doing, but if everyone's doing it at the same time, then the economy seizes up further and the shockwaves are that much worse. My feeling is we all have to seek our own counsel on this one. I've never been a real believer in the "spending = patriotism" idea, but I do feel strongly that I want to do what I can to help the stores and businesses in my neighborhood stay in business, so I'll spend in those places when I feel I can afford it.
Tampa, Fla.: Even with all your caveats, I still want advice! My employer recently stopped the 401(k) match. I contribute about 15 percent and was wondering if this is just stupid. Maybe I should stop the 401(k) contributions and just save the cash, or at least ramp back the percentage. What do you think?
Joel Lovell: Couldn't offer this with a bigger grain of salt, but here's my thinking. You should calculate how much money you'd need for, say, 6 months to a year if you were to lose your job. And then you should put that money in as good a savings account as you can find. If you have anything left over after that, beyond your expenses, then my feeling is that you should keep investing in the 401(k). It's a huge bummer your employer is no longer matching, but that's certainly the trend.
Cameron, N.C.: When I signed up for my company's 401k 16 yrs ago it came with occasional advice on allocation. The advice that I followed was: when you get 5 yrs away from retirement, limit your exposure to risk. Looking at age 60 for retirement I sold most of the risky stuff 5 yrs ago and went into money markets and stable value funds. I watched the stuff I sold continue to increase in value until 15 mos ago when it started the descent to way below what I sold it for. I've been able to sleep well at night for the past 5 yrs because I resisted greed and followed reasonable investment advice available to all. I've resisted temptation to get in on the "sale of the century" by daily watching traders chase their tails all over the place. When sanity returns to the markets I may buy some bargains to hedge inflation, but not til then.
Joel Lovell: That seems as wise as any plan, I'd say.
Albany, N.Y.: I thought the "Santelli Affair" was an interesting moment that crystallized what a lot of financial commentary, at least on TV, has always been--it's showbiz. Even a print commentator, Michael Lewis, has become an industry unto himself. Beyond wanting you to write an interesting column do the editors at GQ ever hope that you stake positions that might stir things up, shall we say?
Joel Lovell: I think you're right. The frustration is that it feels like we're in a time when "showbiz" should maybe take a backseat to a larger, more serious conversation, but that might be a pipe dream. And yes, Michael Lewis is an industry unto himself, but my sense is that he knows very well that the success of his industry depends upon him being very, very smart, so he picks his subjects carefully and knows them well. As for me, there's no pressure to stake purposefully controversial positions, though because I'm not part of the finance world, it's probably a little easier to shoot my mouth off without any blowback.
Baltimore Md.: Reading your Outlook piece yesterday, I was struck by how it echoed screenwriter William Goldman's admonition about Hollywood being the place "where nobody knows anything."
Joel Lovell: Yes, definitely. I've seen that reference come up a few times in the past several months. It seems completely apt right now.
rant: Could you comment on Rick Santelli's rant, please?
Joel Lovell: Well, I don't know what to say beyond what I said in the column. And commenting anymore will attract a whole slew of angry emails to my inbox. But my feeling is that it was faux-populism, basically--rage without much rational argument to back it up. Which strikes me as a slightly dangerous rhetoric for the times we're living in.
Roth better for many: a no-match 401k is often a worse choice for middle-income earners than the Roth. unless you have a huge tax bill, the Roth is better as you look to retirement and like the idea of untaxed income. check it out, folks.
Joel Lovell: Yes, I agree.
Joel Lovell: Thanks very much for taking the time today--I have a baby who's starting to cry in the other room, so have to cut this short by a minute or two. It was a fun conversation, and I apologize for not getting to all the questions (especially the one about what to do about parents who've lost a lot and are afraid and confused about what to do; if you want to email me, I'm happy to suggest people whose opinion I'd trust on the matter). Good luck and many thanks, again, for your comments and questions. -Joel
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