Wednesday, January 24, 2007

Personal Finance Blogs and Lemmings - what do they have in common?

My friend, Moom, had a wonderfully brilliant comment on my last posting, which you can see here. In that posting I asserted that the purported purpose of so many personal finance blogs - to create a public leader board of one's financial progress (and thus enhance accountability) - had been corrupted by a misled desire to convert said blogs into media empires.

Moom mentioned this "I actually see quite a lot of financially unsuccessful people taking advice from each other online...."

So the question I have for you is this:

Do you evaluate the blogger who's advice you are considering? Who's advice may influence your investments for the next 30 years?

Far too often bloggers read each other's blogs without care, criticism or peer review (that would be rude - right?) and rush ahead on any seemingly acceptable direction. Do they pay attention to who they're listening to (to whom they're reading)? Is the writer someone who has proven success in their purported approach or is merely hypothesizing? A hypothesis is a very week financial foundation.

More often than not, blogs circulate untried and unproven ideas that although appealing are often downright wrong and foolish. I can think of no better metaphor than lemmings rushing thoughtlessly over a cliff.

Here's an example: how many bloggers chase 0% interest credit card advances or transfers with the hope of investing the balance for 5%? How may realize how vulnerable they are to the daunting and complex language the credit contract imposes? How many miss the exchange date and owe retroactive interest - destroying their arbitrage benefit? Here's a dose of reality - most credit card arbitragers will seldom obtain more than $10,000. 5% interest for an entire year is only $500.00! Virtually anyone capable of obtaining a $10,000 credit limit can find part time, side work or something to sell that will earn them an additional $500, without the downside risk of 9 months of retro 18-25% interest. Frankly speaking, it's alot of work to obtain easy money that in the end is not so easy.

How many PF Bloggers have even bothered to read any of the major books on investing or personal finances? I'm not talking about Money Magazine, Smart Money or other finance magazines which entice mutual fund advertisers with rotating "xx Mutual Funds you MUST have!" - sounds like a used car commercial. Frankly speaking Kiwosaki, et. al. are more along the lines of motivational speakers than true finance writers and a distraction from those truly interested in maturing their financial knowledge. Bernstein wisely wrote that most personal finance journalists learn by reading each other's writings rather than scientific / academic research. It certainly explains the sorry state of popular financial journalism and unfortunately the poor quality of financial advice amongst PF Bloggers.

I strongly recommend Barry Barnitz's blogs - he has several, but here's one on asset allocation theory. Barry uses his blogs to aggregate peer financial reviewed academic research. The articles are often quite fascinating and certainly never as exciting as "The five mutual funds you can hold until you die," etc.... As mundane as they may be, they very well may help educate the reader and demonstrate the true value of blogs by providing access to valuable information that may not easily be available in books.

One line of thinking does successfully challenge my criticism here - it's the Journeyman's adventure. Everyone loves reading stories about young people naively entering the world of personal finance and investing, making mistakes and learning what they must until they achieve success. It's a form of emotional (and financial) voyeurism, but many people love these stories - look at the popularity of mm's site at pfblog.com.

However, it is essential to distinguish the trial and error laden path of a journeyman from the wisdom of a successful practitioner. I assure you, although I studied anatomy in high school and might be able to follow surgical directions, you do not want me removing your appendix - even if I'm a fast learner. Odd how so many are willing to protect their appendix, but put their retirement at risk.

Next time a blogger recommends a method of earning money, I would post a comment asking him to validate the approach. I wonder what he (or she) will say.

Regards, makingourway

7 comments:

Personal Finance Blogger said...

Interesting couple of posts.

I too like the comment about many financially unsuccessful people leading each other.

While I don't consider myself wildly successful I think I've done OK given my past hardships. A big part of me wants people to learn from (rather than repeat) my mistakes, both past and present.

Anonymous said...

Firstly, your new blog layout looks great. My only suggestion would be to put the tracking/progress charts in the middle column if possible, since they look cramped where they are and somewhat difficult to read.

I use the PF blogs mainly for ideas, but then research from more reliable sources before implementing. They also help to keep me motivated and to see what is possible (as in your case). It would be great if more people in financial positions similar to yours had blogs as well as people tyring to crawl out from under mountains of debt. Maybe in time ...

About the 0% credit card offers, I don't use them exactly as you often see described, but like this: My husband and I have about $90K on a home equity line of credit with a limit of $205K.(no mortgage). We sold some acreage and carried the note which is all due in about 18 months and will cover this amount. I rotate big chunks of this amount out from the 7.75% interest on the line of credit to our two credit cards, both of which have credit limits of over 30K. Interest rates vary from 0 to 2.99%, so I calculate that it's worth the hassle. The credit cards are used for nothing else. So far, so good ...

If I'm careful with meeting the repayment deadlines, do you see any reason this is a bad idea? The only downside I see is that it may affect our credit scores, but since they were both over 800 about a year ago and there is no forseeable reason in the next 2-3 years for our credit scores to matter, it seemed a moot point.

Thanks for any input,
Anne

Anonymous said...

Are you having a bad week? Are you just mad that you're not making enough $$ off your blog?

I do think that 95% of the Pf Bloggers don't know sh*t. Even the ones with a high net worth amaze me sometimes, including $2mil and MM

makingourway said...

Thanks for the comments. Glad to hear about the layout.
Anne, what you're doing between the two debts does makes sense, but I would still be very uncomfortable with the risks/penalties for a mistake (usually retroactive interst). My thoughts on the superiority of earning some extra cash still seem to hold 5% on $20k is $1000 savings vs. the risk of owing more on the credit cards.
personal finance, I consider you quite successful as an investor and business person. You've done more than most pf bloggers have in their entire career - don't discount yourself!
anon, i have been pretty critical over the last few days - haven't i? Most of the thoughts here have been accumulating over time - I've needed to get them out. And no, I'm not upset about making extra money off my blog. Trust me, if I compared my income to what I earn (or most other pf bloggers), I could never justify the time - it's more of a passion and an effort to keep myself on plan.

Regards, makingourway

Man on a Mission said...

These 0% offer-investing-people forget to factor risk in their equations. Why can't they just save $10k and invest that? Because we've grown so impatient as a people that we have to instantly gratify our desire to be "earning" money.

StealthBucks said...

I agree on every point. The best thing about pf blogging for me is I get to pop off anonymously which is kind of fun but even better, I like the self accountability of placing my goals out there and then attempting to achieve them. I really like networthiq's monthly post as it really holds me to my word and conviction.

I really, after a good year of this don't get or appreciate the o% freakazoids. I went head on with a few who lamabasted me for looking in to the foolishness of the zero diollar game. I have been crazy busy and thus, have not posted much but I prefer good logic and investing mainstream strategies. Good luck to you in 2007.

Jim said...

I agree with your comments. I personally think that far too many personal finance blogs advocate short term trading strategies without considering the associated transaction costs including tax implications. I would never trade like that on my own account. That is why I created a generally passive model portfolio that I have been tracking since the beginning of 2006.