What do celebrities and trading have in common? Not much.
When White House spokesman Sean Spicer was still fairly new to his job, The Washingtonian reported a rumor that former Navy SEAL Carl Higbie had been interviewed as a replacement for good ole Spicey.
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To rebut the gossip, Spicer tweeted: “Getting government updates from @Washingtonian is like getting stock tips from @usweekly.”
What followed was a Twitter snowballing characteristic of organizations who know how to take a joke.
“Thanks Spicey! @usweekly does not recommend investing in individual stocks. Stick with a board mix of low-cost index funds,” the magazine’s social media manager advised.
Trading in index funds exposes a portfolio to a diverse range of businesses, ensuring the investor against sudden drops in the value of any particular corporation…and watered down returns.
Professional traders active on Twitter chimed in, concurring with the magazine’s take on financial markets for beginners.
The most popular subjects of US Weekly’s pages – celebrities – often urge fans to join in on their new stock buys, which can deflate in value after the stardust fades.
Celebrity stock tips are a hot commodity of their own for financial and celebrity publications. Playboy and Tradingmarkets.com ran a stock-picking competition in 2006, in which they had ten beautiful women pick five stocks (incidentally, one of them was the sister of Jenny McCarthy of anti-vaxxer fame). The highest value portfolio at the end of the competition got $50,000 to donate to the charity of her choice.
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McCarthy struck beginner’s luck (or did she?). The Wall Street Journal reported that her picks were up more than 20% halfway through the process, “beating every single one of the more than 6,000 mutual funds tracked by Morningstar.” Combined, the models averaged a 3.41% return – beating out Standard & Poor’s professional investors who clocked in at 1.06%.
Growth in oil prices in 2006 benefited some of the women’s slim portfolios. Playmate Deanna Brooks elected to invest in Brazil’s national oil company Petrobras for the simple reason that “oil is making money.” Replicating her results in the current market with Petrobras on her plate would be impossible.
The time-tested blue chip stock IBM was another one of her picks because computers “aren’t going away.”
Each model had a simple formula. Some looked for free capital and low debt, but most stuck to companies or sectors known to be popular among American consumers. But it is unlikely that any of the women’s patterns would produce repeatable results. It’s like reusing a winning lottery number; a past victory has nothing to do with future wins because too many factors are unpredictable.
Some financial bigwigs who spoke to The Daily Beast even suggested that a rash of stock tips by actors or singers or people generally aloof regarding stock issues signals a coming market crash.
Writer Daniel Gross cited a 2012 incident with Kim Kardashian as a pertinent example. On one August day, the socialite retweeted author Sheeraz Hasan, who posted about Apple Inc.’s status as the most valuable company in history.
The weeks following the tweet saw the AAPL stock price continue its multiyear climb, but soon, a 37% slide cost the company its “most valuable company in history” title.
“It’s always dangerous when people get outside their core competency,” Gross summarily states. “Actors wouldn’t take advice on diction from hedge-fund managers, after all.”
Kim K. did not have any of her own funds invested in Apple, meaning the stock’s losses meant nothing to her personally.
In another example of celebrity-trading-gone-wrong, Bono’s investment in Palm electronics turned out to be a huge loss. The Irish singer-songwriter bought a 30% share of the mobile phone company in 2004 for $325 million. Apple’s disruptive introduction of the iPhone three years later devoured Palm’s salience in the cell phone market, and HP bought the company out at a steep discount, causing Bono $140 million in losses.
Of course, the U2 singer has recovered financially since then, with a boosted popularity among millennials who suddenly found the band’s newest album in their iTunes library after Apple’s 2014 Keynote address.
So far, we’ve covered celebrities hit and miss record with picking winning trades, and stocks gone wrong after celebrity buy-in. Now let’s talk Ponzi, because celebrities are not immune. In fact, due to their financial prowess, celebrities are more likely to be targets of Ponzi scheme scams run by con men disguised as financial planners or heads of lucrative “multilevel marketing” enterprises.
A couple of years after Bernie Madoff’s criminal streak, fraudster Kenneth Starr plead guilty to swindling his list of celebrity clients out of at least $59 million.
The best and brightest of Hollywood and its corollary arts were affected: Actors Uma Thurman and Sylvester Stallone, who filed a lawsuit against Starr for advice that caused a $10 million loss in his chain Planet Hollywood’s value. Other victims included musician Paul Simon, actor and singer Liza Minelli, NBC newscaster Tom Brokaw, producer Harvey Weinstein, talk show host Phil Donohue, singer Carly Simon and more.
Stars have access to millions of people willing to buy concert and show tickets worth hundreds of dollars to meet and greet the public figures nearest and dearest to their hearts. Fans would be better served using those dollars to pay to attend their favorite celebrities’ events, rather than follow their “trendy” financial advice through “it” stocks, even if it is pushed by the likes of Oprah Winfrey.
Winfrey purchased a 10% stake in Weight Watchers in 2015 for $43 million – causing the stock to rise 320% in value in the month following the announcement. But a year later, roughly 90% of those gains dissipated, leaving behind only modest growth.
Stock tips from those in the lime light gain media and market attention in a heartbeat. A short blurb about an actor’s new pet company will serve as a fine fill-in on a business news show on TV, but a decision made by a millionaire supporting his latest fancy should not cause disciplined traders to abandon their tried and true trading strategies. The tips are a Trojan horse: they enter the minds of fans disguised as a great new venture, but ultimately harm a sound trading campaign.
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