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December 04, 2006
Podcast for 12/04/06: Interview with Eric Zitzewitz
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Kim interviews Eric Zitzewitz, an economics professor at Stanford University and the co-author of a study on financial publications and their mutual fund recommendations. The study found a clear bias toward advertisers.
MP3 Download: Hi (128k) | Lo (24k)
Length: 25:25
Notes:
1:15 Eric talks about what his paper, "Do Ads Tempt Editors?" studied and found. They looked at mutual fund recommendations in major publications
2:40 Study covered 1996-2002, The New York Times, Wall Street Journal, Money Magazine, Kiplinger's Personal Finance, Smart Money.
3:10 A mention in one of the magazines can be great for the fund mentioned. Study found a lot of advertiser bias. Example: Fund from big advertiser is twice as likely to make Money 100 list as a fund that doesn't advertise.
5:12 It could be companies with better funds are the ones advertising, but study disputes that possibility.
6:30 PR agencies find ways to get through to reporters
7:15 Sometimes fund officials who advertise would walk the newsroom floor and hand out business cards, establish contacts.
8:15 Mutual funds may view their advertising as insurance against bad stories.
8:45 Positive mentions are not predictive of future returns. All of the publications put too much weight on past returns and little to no weight on expense ratios.
10:15 This bias is a lot like financial advisors who work on commission
11:40 Zitzewitz says you should read the financial media for entertainment, not for mutual fund advice
13:10 It's hard to shake investors off of looking at past performance instead of expense ratios.
14:35 Consumers are good at being skeptical, except when they deal with financial advisors.
15:40 Big disconnect between marketing literature and academic literature. Do economic academics need to step up?
18:40 Studying economics and allowing for investor mistakes
21:10 Surprises in the study, for example: Consumer Reports doesn't have advertisers, but their recommendations were just as bad
22:20 How reporters pick which funds to write/talk about.
Resources:
Do Ads Tempt Editors?
Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.
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Kim Snider is an author, speaker and host of Financial Success Coaching, Saturdays at noon, on KRLD Newsradio 1080, Dallas - Fort Worth. This blog is primarily devoted to empowering individual investors with information to help them be good stewards of their money. Above all, it is about achieving true financial success. Kim's book, How To Be the Family CFO: Four Simple Steps to Put Your Financial House in Order is in bookstores now. Order yours from Amazon or other fine booksellers today.
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