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Tuesday, February 17, 2009
Suze Orman - stop or start listening to her?
Came across an article by Scurlock on Suze Orman.

I had never heard of Scurlock before but was surprised by his advise regarding stop listening to Suze Orman.
Stop listening to Suze Orman. The personal finance guru favors super-simple mantras -- even when they're wrong -- and psychological explanations for all your money problems. Maybe it's time to stop trusting her.
I personally don't have hard feelings either way for or against Suze Orman but I like her show even though a lot of what she discusses is basic. I especially like her emphasis of putting people first rather than money. Some of the things mentioned in Scurlock's article seemed off the mark to me. For eg, he lambasts Suze Orman on the dollar cost averaging.
But it is not Suze's hypocrisy or even her intellectual laziness that really bothers me; no, that would be something Suze "loves" called "dollar cost averaging," which involves buying the same stock over and over again as it falls.

"It's a great opportunity for you when the value of the shares drops," claims Suze in the inaptly named "The Road to Wealth," "because you can buy shares at 'bargain' prices and average down your cost per share."

Oh, where to begin? Maybe with the obvious: Since when does throwing good money after bad make you rich? It doesn't.
I guess, as per Scurlock, either you don't dollar cost average or do it only when the stock market is going up. Sure, you don't want to throw good money after the bad and it's important that you don't dollar cost average by buying stocks of companies that are heading towards bankruptcy or with poor fundamentals. In the current market, dollar cost averaging hasn't been kind (at least so far but then it's a very small time horizon for now) and even pros like Bill Miller, Richard Penza, Dreman and others have licked their wounds.

While some of Scurlock's criticism may be valid, I think people need to realize that not every person is financially savvy nor are shows like Suze Orman's or Jim Cramer's or Fast Money etc are meant for every one. Most of these shows and even personal finance magazines are geared towards the broad audience and therefore, many of the recommendations given may not be good for every individual's situation. For eg, one of the things I frequently see in media is how credit cards are so bad and we should cancel them! To me, misuse of credit cards is bad. Buying things on credit card when you don't have the money is bad. Buying things on credit card and getting into debt is bad. However, if you spend wisely and pay off balance in full at the end of each month, all the time taking advantage of rewards and other perks, then credit card usage could be beneficial.

In contrast, I found Felix Salmon's article at SeekingAlpha to be more balanced and putting things in perspective.
Yes, Orman lards her books with no small amount of Oprah-level pop-psychology -- but when she does so, she's generally right. It's easy for the analytically-skilled elite of the information economy to scoff at such things, but something as basic as spending less than you earn really is akin to eating fewer calories than you burn: conceptually easy, but very hard in practice, especially when the world seems to be conspiring against you at every step. And succeeding in such matters requires a level of psychological discipline, while failing in them often has psychological causes.

Scurlock mocks Orman's statement that "you will never achieve a sense of power over your life until you have power over your money," but it's a great way of harnessing the imperatives of the otherwise largely destructive self-help movement and putting them to good use. As for "the stock market is like a pot of soup" -- that's as good a way as any to explain diversification. You want she should go into details of capital structure and limited liability corporate entities?

Orman's audience is struggling with money woes. That's true pretty much by definition: someone who has these things all worked out is not going to read her books. But it's also true that most of Orman's readers and viewers aren't going to declare bankruptcy: there's a huge terrain of financial difficulty between bankruptcy and health. It's simply obtuse to imply, as Scurlock does, that because most bankruptcies are caused by catastrophic events, the people who don't suffer catastrophic events and who don't declare bankruptcy are probably fine, on a financial level. They're not. Many of these people are in desperate need of financial help, and Orman is providing a very valuable service which America's financial institutions have every incentive not to provide.
. For complete articles, see: If You Knew Suze Like We Know Suze In Praise of Suze Orman
posted by Little Rishi @ Tuesday, February 17, 2009   0 comments

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