The Curmudgeon

November 01, 2005

Mom and Pop going passive? Hard l y. Tempting as it is to think the exhortations of financial advisors have turned the hoi pol- l o i against active management, index investments, for most, are still foreign territory.

Why just today, the business editor of a newspaper admitted to me he didn' t know what an exchange-traded fund was. If the guy that spices your parent's morning coffee with financial news hasn't got a clue, what odds are you willing to give me Mom and Pop are n't wired into VIPERS or i S h a res, either?

News outlets and financial publications a re still filled up to their scuppers with the pitches of experts claiming they can outthink the market. And Mom and Pop are still swallowing a lot of that bilge.

So it comes as no surprise to see an advice column penned by baseball star c u m financial guru Lenny "Nails" Dykstra s p rout up on Dykstra, one of the bad boys that led the 1986 New York Mets to a world championship, now claims to be channeling for Wa r ren Buffett in a screed entitled "Nails on the Numbers." Dykstra got into this writing gig, he says, to help investors "better understand the market and, ideally, make some money. "

Gee, isn't that nice?

So how does a centerfielder transition f rom shagging flies to hitting financial home runs? Well, apparently shell-shocked from the dot.bomb implosion of his brokerage account in 2000, Dysktra took a hiatus from the market to swap one-on-one baseball coaching for investment training with a so-called "trading expert."

The sum total of this experience? Nails expostulates:

"In the year I spent learning about the m a r ket and its many nuances, I determined that one of the major flaws in most b ro kers' style is a lack of diversity in their s o-called diversified blue-chip funds.  In understanding what went wrong with my b ro kerage account, I came to realize that the 'first class' mutual funds that I was put into, from different fund families, nearly all invested in the same stocks."

Startling, isn't it?

Ah, but there's more. Dykstra's time with his mentor apparently led him to the stock-picking grail, too. He offers p rospective stock buyers the novel advice to make sure a company generates fre e cash flow and to see to it that return on equity is high but debt is low.

As living examples, Nails offers us his c u r rent picks, Symantec and Dow Chemical. Now, where'd that talk of diversification go? As members of the S&P 500, both Symantec and Dow are large-cap stocks with heavy institutional ownership. In fact, two-thirds of Dow's outstanding shares are held by outfits like Fidelity and Vanguard, while a whopping 90 percent of Symantec's stock is parked in fund accounts. Are n't those the stocks that blew up your account before, Lenny? Sorry, pal, but your advice turns on itself like that of a third base coach with the D T' s .

For diversification advice, there are much better sources. Take Richard Ferri's new book All About Asset Allocation ( McGraw-Hill), for example. Ferri literally gives away the store in this tome, offering Mom and Pop an easy-t o-understand and easy-to-maintain lifetime investment strategy based upon risk management and multi-class investing.

"Beating the market isn't easy," says Ferri. "A lucky few, like Warren Buffett, have done it. For the rest of us there's asset allocation."

If Mom and Pop are going passive, this ought to be their travel guide. The trouble is, as Ferri admits, asset allocation is a boring strategy. Competing for investors' mental shelf space is tough enough, but the call to take a well-reasoned stance is d rowned out when guys like Nails constantly urge us to "get in the box and take some swings."

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