Financial Literacy

The John Stossel Interview: The 5 Most Dangerous Investment Myths


ABC News Anchor John Stossel: The 5 Most Dangerous Investment Myths

by Mark Skousen, Chairman, Investment U
Monday, September 11, 2006: Issue #579

Last week I sat down with consumer advocate John Stossel, primetime anchor of 20/20, at ABC headquarters in New York City. John is famous for confronting Myths, Lies, and Downright Stupidity, the name of his latest book (which I’ve read cover to cover).

John is a longtime friend who speaks at my annual FreedomFest conference. He grew up in my hometown of Portland, OR, so we have a lot in common.

I asked John about the five popular “myths” investors should know about. Here’s what he had to say

Myth #1: There is a major energy crisis, we are running out of oil, and gas prices are going through the roof.

Mark Skousen: Is there any truth to this statement?

John Stossel: That’s three myths, not one! It’s really a matter of price, isn’t it? There’s no energy crisis…

At $70 a barrel, there’s enough oil in the tar sands of Alberta in Canada alone to fuel America for 100 years. The idea that foreign oil is evil is silly because it all ends up in the same bathtub anyway. If Iran won’t sell it to us, they’ll sell it somebody who will sell it to us. And we have enormous reserves in coal. And in 50 years, with man’s amazing ingenuity, I assume we are going to have energy alternatives we can’t imagine. Gas prices a record? What idiocy! If you adjust for inflation, gas prices are cheap. In my book, I show that gas is still cheaper than bottled water or ice cream!

Mark Skousen: Here’s a follow-up myth: The government needs to subsidize alternative energy such as ethanol, windmills, fuel cells and tar sands.

John Stossel: If it’s a good idea, why do we need the government to subsidize it? The marketplace will make it happen.

Mark Skousen: Doesn’t the government need to accelerate the research into alternative energy?

John Stossel: That assumes the government and the wise elites know better than all those greedy entrepreneurs who are constantly trying to figure out a better way. In the 1970s under Jimmy Carter, the federal government wasted billions on the synfuels project. The Japanese government told Honda to stick to the motorcycle business. Government is terrible at predicting the future.

Mark Skousen: So what’s your prediction? Will the price of oil fall, as Steve Forbes predicted in my interview six months ago?

John Stossel: I’m not smart enough to be in the predicting business. Experts predicted that we were going to run out of oil in 1940, and in 1970. They’ve been wrong about peak oil again and again.

Myth #2: Government regulation is necessary to protect consumers. Without government regulations, business villains would have free reign to rip off the public.

John Stossel: No business has free reign because business can’t use force, and to succeed, business has to give consumers good things.

As a consumer reporter, I saw the cheating, but I eventually saw that these bad businesses don’t get very big. Yes, there are some Enrons in our $13 trillion economy, but what’s remarkable is that they are the exceptions. If you let the competition of the market work, they go away, and the good companies grow.

Mark Skousen: Did the media do the job of exposing Enron and Worldcom frauds, or was the SEC necessary?

John Stossel: It wasn’t the SEC that brought down Enron, it was the analysts getting honest information, and word spread alerting people to the problem.

Mark Skousen: What about this myth: Legislation like Sarbanes-Oxley is actually good for the stock market.

John Stossel: Possibly, but if companies are fleeing America to avoid the rules, I don’t see how that can be good for the stock market. If more energy and money is spent on accountants instead of engineers and scientists, it’s not good for the stock market or for anybody, with the exception of the accountants and the lawyers.

Myth #3: Brand-name food, gasoline and drug products are better than generic products.

John Stossel: Often true. Things like non-food items like plastic bags. We tested them and found the genetic bags carried less garbage, and paper towels held less water. But it’s food people are most squeamish about, and in the blind taste-tests we found a third of the people preferred the no-brands food.

Mark Skousen: The natural or organic food movement is growing rapidly in this country. Witness the stock performance of Whole Foods Market. Is organic food any better than chemically produced foods?

John Stossel: Our studies showed that in terms of health, there’s no evidence that organic foods are better for you, cleaner, or less likely to have bacteria. But I’m a libertarian, and I don’t see the natural foods industry as a threat, and I’m perfectly happy to see them earn zillions of dollars.

Whole Foods Market has a wonderful store here in New York, and it’s a delight to visit. If people want to pay more for organic food, God bless them, but it makes me feel sad when mothers think they are cheating their kids because they can’t afford to pay the higher prices for natural foods. And it’s sad the way the organic industry has smeared the real heroes, the conventional farmers who use small amounts of pesticides and have performed a miracle in feeding people more cheaply than ever.

But the public is more likely to listen to John Mackey [CEO of Whole Foods Market] than me. My views probably won’t hurt the stock of Whole Foods Market. The corporate social responsibility movement will continue to grow.

Myth #4: Global warming is caused by pollution from excessive economic growth. We are headed for environmental disaster, which spells doom for the stock market.

John Stossel: It’s possible, but I doubt it. The media has successfully predicted 700 of the last two disasters. I’ve covered the flesh-eating bacteria, the cancer epidemic from pesticides, Y2K, bird flu, and the endless litany of crises, and I suspect this will be one more. Yes, the globe is warming; man probably has an influence. But will it be as terrible as the Al Gore movie suggests? I don’t think so. Activists always paint the more dire scenario. But we don’t know. The science of climate predicting is primitive.

Myth #5: You can’t beat the market; therefore, the best investment strategy is to buy an index fund, and forget about buying individual stocks and following investment services.

John Stossel: True, as far as I know. I think you’re wasting your money taking advice from Mark Skousen (laughter).

Mark Skousen: Stop the recording!!! (more laughter).

John Stossel: It’s also embarrassing because my brother in law is Michael Steinhardt, who beat the market year after year [Steinhardt Partners earned a 27% compounded return over 20 years]. But now he runs an index fund!

Mark Skousen: Funny, your book cites Burt Malkiel’s Random Walk Down Wall Street in favor of efficient markets and index funds, but ignores Warren Buffett, Peter Lynch, Eddie Lambert and all the other who’s who of investors that have consistently beat the market. It sounds like you didn’t dig very deep this time with your shovel.

John Stossel: I can’t argue with that. I have to admit I sometimes shovel in a shallow way. I work in TV, after all. But according to Morningstar, more than 90% of actively managed mutual funds fail to beat the averages. That’s pretty damning.

Mark Skousen: You’re right. It makes a case for efficiency, but not 100% efficiency. There are inefficiencies. Knowledge is power, and if you have better knowledge than the general public, you can be a superior investor.

Your book seems to be pessimistic about what the media and the public know. Do you ever wake up optimistic about the world?

John Stossel: I should, because the message of Myths and Lies is that life is getting better all the time and we live in the best times. But I tend to be a pessimist and see government continue to grow and the people having more faith in the power of central planning.

John Stossel’s Perspective on Other Popular Myths

Skousen: What are the chances of us seeing in our lifetimes the following:

Private accounts in Social Security?

Stossel: 60%.

Skousen: National health insurance?

Stossel: Sadly, 70%.

Skousen: Cure for cancer?

Stossel: Amelioration? 90%. Total cure? 0%.

Skousen: 50,000 on the Dow?

Stossel: No idea.

Skousen: Tort reform?

Stossel: 30%.

Skousen: End of traffic jams due to market-based pricing?

Stossel: 40%.

Skousen: End of terrorist attacks?

Stossel: 30%.

Skousen: Nuclear attack?

Stossel: 30%.

Skousen: Our troops leaving the Middle East?

Stossel: 50%.

Skousen: You have been around the public for more than 35 years, John. What’s the most important lesson you’ve learned in life?

Stossel: That happiness doesn’t come from your next prime-time special. Happiness comes from good relationships and pursuing goals you find worthy. And also that our lives are better run in the voluntary sector than by government force.

Skousen: Thanks, John.

Good Investing,


John Stossel with Mark Skousen

Today’s Investment U Crib Sheet

  • Over the last 12 months, an Albany, NY-based investing group is up 115%. And it’s not the only small crowd making hedge fund-like gains An elite group led by K. Hung banked nearly 300% two years ago versus a 29% return in the S&P. Prospect Partnership, another select group of investors, made 272% the same year. Hedge funds are typically reserved for investors with at least $1 million. But the playing field is leveling out, and now you can get in, too. Here’s how.

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