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The word on financial talk shows

- Alan Lavine and Gail Liberman

On one program segment, viewers call in and rattle off the names of stocks. Host Jim Cramer, co-founder and director of TheStreet.com, at lightening speed, espouses his opinions.

The show also includes a game, "Am I diversified?" But those who tune in late may not realize that Cramer's guidance is aimed at diversifying a few stock holdings exclusively.

To be truly diversified, investors also must own bonds, cash and other securities. You want something to cushion the blow if the stock market tanks!

Probably like most husbands and wives, our thoughts about this television show are split.

The female coauthor loves it! But the male coauthor, sensitive to all the show's loud beeps, honks and shouting, exits the room and closes the door when it starts.

The show's critics, which include MarketWatch columnist Paul B. Farrell and more recently, money management guru Paul Merriman, contend that the program does investors a disservice. Reason: It encourages the very costly practice of active stock trading.

While it's certainly possible to make big money by trading stocks actively, you also can lose your shirt. Even if you don't lose your shirt, you're paying commissions on trades, as well as taxes on capital gains.

So is this show truly worth watching?

Gail: Yes--provided that you take it with a grain of salt. The program is designed for those willing to risk only a tiny bit of their holdings. The show has some interesting analyses, educational information and sometimes, great guests.

Al: No. I can't stand it! It's nothing but hot tips. When you invest, you need to do quite a bit of research.

We both share critics' concerns about young families using the show as a means to attain financial security. We can't help but think about the debt-ridden manicurist, who once asked us about trading stocks online.

Then, there was an office building manager, who day-traded daily. For days, we saw him with a big smile on his face, only to encounter him again on a down day. We don't know the whole story, but we heard afterward that he and his wife divorced.

When you trade stocks, you can win a whole lot, but you also can lose your shirt. It doesn't pay to trade online with money you can't afford to lose--no matter how lucky you feel or what hot tip you get.

This brings us to some points Merriman raises in his recent "Fundadvice.com" newsletter:

  • Active trading, due to the fees and resulting capital gains taxes, is counter-productive. Even Cramer has admitted that he does not encourage ordinary people to trade.

  • Short-term performance can be misleading. Merriman cites the number one mutual fund manager of the 1970s, David Baker, whose performance was dead last in the 1980s.

  • Cramer makes viewers believe they're smart and sophisticated enough not to act on a single stock pick without making up his or her own mind. We have to agree. Although Cramer's callers may be smart, most families lack time to do the research required for picking stocks.

  • The show ignores proven basics. By simply socking money away regularly rather than trying to make a killing by trading, you can get attractive returns without necessarily overpaying on fees and taxes.

  • By paying too much attention to the daily noise of market swings, you risk losing sight of the ball when it comes to investing. "The most famous long-term investors I know claim that most day-to-day news is meaningless noise," Merriman declares.

    Even though this column's female coauthor truly appreciates "Mad Money," neither of us has ever acted on one of Cramer's tips. Yet, our assets, despite significant market downturns and expenditures, over time have grown.


    Spouses Gail Liberman and Alan Lavine are syndicated columnists. You can purchase Alan Lavine & Gail Liberman's latest book Quick Steps to Financial Stability (QUE Publishing 2006) online at www.moneycouple.com or at your local bookstore. E-mail them at MWliblav@aol.com.

    To read more columns, please visit the column archive.

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