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The Worst Investment Calls of 2011: Part I


It's time to do some quality assurance on investment gurus and the financial media, so here are some of the worst investment calls of last year.

A bunch of things irritate me about the way emergency medicine physicians are treated in the emergency department. Near the top of my list is the fact that we’re held accountable for everything, but almost no one else in the hospital is held to the standard of perfection that ER doctors are.

For example, often the hospital doesn’t provide enough nurses to run an ER yet expects short wait times. Just how is that possible? Will the hospital’s CEO be held responsible when a patient dies due to understaffing? Of course not. The blame always goes to the doctors.

Something similar irks me with people who make predictions about investment returns but aren’t held accountable for their actions. So I’ve compiled a list of the worst investment calls of 2011. It’s time to do some quality assurance on investment gurus and the financial media.

Let’s look at two of them.

1. U.S. stocks will crash if our AAA credit gets downgraded

The first week of August 2011 — when our credit rating lost its coveted AAA rating — was incredibly volatile with U.S. markets going up and down 5% or more in a day. By the end of September, U.S. stocks had lost almost 20% since the beginning of 2011.

However, at the end of 2011, U.S. stocks climbed back to right where they started the year. Granted a 0% rate of return is nothing to brag about, but it was nowhere near the apocalypse many had predicted.

2. U.S. bonds are in a bubble and will crash

You may have heard of Bill Gross. He’s considered the world’s bond market guru — most call him the “Bond King” — and he works at PIMCO, a mutual fund company. Bond markets react every time his lips move … until 2011. This guy runs what is considered the best bond mutual fund around — the PIMCO Total Return fund. It’s a popular choice for a bond fund in many 401(k) lineups.

Early in 2011 Gross sold all U.S. Treasury bonds from the fund, stating that their price was too high and were destined to go lower. The fund held over $150 billion in U.S. Treasury bonds in mid-2010, a position that was slashed to zero in early 2011. In summer 2011 he told investors at a conference that investors who buy U.S. treasury bonds will “get cooked like frogs in an increasingly hot pot of water.”

Well, investors did get cooked like frogs, but only if they followed his advice. The PIMCO Total Return fund was up 3.9% in 2011, but U.S. Treasury bond funds, as represented by the Vanguard Intermediate Term Treasury Fund, were up almost 10%.

Next time, more of the worst investment calls of 2011.

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