Bailout

Esquire?s investment advice

By Felix Salmon

Courtney Comstock is absolutely right when she runs a story under the headline “You Know It’s Over When Esquire Magazine Is Telling Its Readers How To Invest In Gold Funds”. In a spectacularly silly article, Esquire’s Ken Kurson extolls the virtues of buying gold-denominated hedge funds, on the grounds that if the hedge fund doubles and gold doubles, then you’ll end up quadrupling your money! Genius.

But to appreciate the fuller expression of Kurson’s genius, it’s worth flicking through his archives. There’s the 2006 article where he says that everybody should invest in credit default swaps, specifically by buying stock in a company called GFI Group:

A few days after its January 2005 IPO, I bought a few hundred GFI shares (GFIG on Nasdaq) for just under 26, and I have since added a couple thousand, picking up more each time the stock dips below 50. (I should mention that GFI’s CEO, Mickey Gooch, has become a friend of mine.) In addition to my belief that this stock could very well become a tenbagger within ten years, there’s something very appealing about investing not just in a company but in a whole new industry.

Today, GFI Group is trading at $4.43 per share. Yes, that’s in the wake of a 4-for-1 stock split, but it’s still well below its IPO price, and Kurson, if he didn’t sell at the top of the market, is now sitting on substantial losses. Of course, that’s the problem with 99% of investment advice, not just Kurson’s: these people are very happy to tell you what to buy and when to buy it (now), but never tell you when you should exit your position.

Kurson also reckoned that the automakers were a screaming buy in 2005, saying that “GM is moving with stunning speed to address what ails its business, and that “the United States government will not allow Ford or General Motors to default on its debt”. How did that trade work out for you, Ken?

But if Kurson is not very good at telling you what to buy, maybe he’s good at telling you what to sell. Let’s see:

An investor should short as many shares of Apple as he can possibly borrow…

I’m short a bunch of AAPL at $65.

Oh well, never mind.

So when Kurson says that “$20,000 will barely buy in five years what $10,000 buys today”, it’s worth reading that in the context of his past predictions. And maybe staying away from the gold-denominated Superfund.

Full post as published by Macroprudential on February 10, 2010 (boomark / email).