Glen Beck and inefficient, uninformed markets.
Should we expect security markets to be efficient? Academicians usually argue that information is readily available and investors are intelligent and motivated. Practitioners and students often respond by pointing to less informed, or even ignorant, investors who did well in the market (Uncle Joe perhaps). The academician then admits that some less informed individuals exist. (What academician who grades exams could doubt this?) It is then argued that the less informed would normally lose money to the informed. Thus, the informed would come to manage the vast bulk of the investment funds, (assuming no new less informed investors enter the market). The less informed should end up managing such small sums that they have little effect on prices. Thus, the price setting process should be dominated by the well informed, wealthy investors.
There is only one problem with this argument. In an efficient, or a mildly inefficient market, the informed may make money at the expense of the less informed. The reason for this is that financial theory predicts that risk taking is rewarded (see Reilly 1989, Bodie, Kane, & Marcus 1993, or any other text). Those taking greater risks can earn a higher rate of return. Poor information and inadequate security analysis often lead to taking greater risks. If the return to the extra risks taken by the less informed exceeds the losses due to poorer security selection, the less informed will experience a higher rate of return on their total portfolios than the better informed. The wealth of the less informed will grow more rapidly than the wealth of the informed
My bold The big thing is if the less informed investor takes bigger risks that get lucky then he might make more money than the better informed because he took bigger risks.
However suppose you are informed but lied too? Suppose you watch Glen Beck, Mike Huckabee, Laura Ingraham, and Fred Thompson and trust them to report the news?
Suppose you trust the government to regulate the news and not let newspeople con you into buying stuff that is 90%-208% over priced? Suppose you bought a gold coin recommended by Glen and friends instead of a gold mining stock?
Buy a $100 gold coin and the price is the same as buying gold bars unless the coin has historic value to collectors. On the other hand buy a $100 gold mining stock and you get dividends every year granted not great dividends but 2.5% every year is still more $100.
Yes the price of gold is going up if you buy a gold coin the value of the gold coin goes up however if you buy a gold mining stock your stock goes up with the price of gold plus you get the dividend.
In simpler words for Glen Beck’s viewers buying gold mining stocks will make you more money than buying gold coins. That is assuming of course that the gold coin you buy is worth what you pay for it.
The average Goldline markup was 90% above the melt value of the coin. The largest markup on any coin was 208% above the melt value. Furthermore, the average Goldline markup is 47% higher than better-priced competitors, with some of the company’s markups going as high as 102% compared to its competitors on one of the coins they offered.
While many people think gold will go up imagine finding out that the gold coin you bought at yesterday’s gold prices must double before you can sell the gold at a price that lets you get your money back let alone make a profit!
I’m guessing that Glen’s viewers who have bought gold coins have heard the news unless anyone else has a theory to explain Glen’s Beck’s ratings drop?
Glen hates government regulation because he is a crook Goldline his advertiser’s sales people falsely claim that their sales people are investment advisors. Apparently selling gold coins at 90% – 208% is legal but claiming to be a financial adviser when your not is a crime?
I really think that while the market should set a price lying about product any product should be a crime. If I buy a car I expect to be able to drive it off the lot. If I buy a gold coin I expect it to worth the price I pay. I realize that yes the company must make a profit but I would like to be told what the value of the coin is minus the companies profit.
If I choose to buy a gold coin because I think that gold prices will go up that would be my informed choice. If I am crazy and decide to buy a gold coin rather than a gold mining stock that pays dividends that would be my informed choice.
We cannot expect markets to recover if people do not have trust in the markets. The Government has a duty to protect people from scams even stupid people.
Sales people imply that they are “investment advisors” or “financial advisers” by offering investment advice, which insinuates that they have some sort of fiduciary responsibility to get you the most return on your investment.
However, since they are not licensed investment advisors, they have no such responsibility. In 2006, the Missouri Secretary of States’ Office, Securities Division filed formal consent order against Goldline for exactly this reason and recovered over $200k for an elderly consumer that was ripped off.
Goldline employs several conservative pundits to act as shills for its’ precious metal business, including Glenn Beck, Mike Huckabee, Laura Ingraham, and Fred Thompson. By drumming up public fears during financially uncertain times, conservative pundits are able to drive a false narrative. Glenn Beck for example has dedicated entire segments of his program to explaining why the U.S. money supply is destined for hyperinflation with Barack Obama as president. He will often promote the purchase of gold as the only safe investment alternative for consumers who want to safeguard their livelihoods. When the show cuts to commercial break, viewers are treated to an advertisement from Goldline.