Suze Orman’s bad investment newsletter

By Felix Salmon
January 22, 2012
Jason Zweig has managed to get one of the weirdest quotes ever from a would-be investment guru:

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Jason Zweig has managed to get one of the weirdest quotes ever from a would-be investment guru:

In a news release issued in March 2007, Mr. Grimaldi said one of his newsletters had “been ranked #1 by Hulbert Financial Digest” for the five years through 2006… Mr. Grimaldi’s other newsletters, although not the Money Navigator, have featured the claim “Ranked #1 & Recommended by Hulbert Financial Digest!”

Mark Hulbert, editor of the digest, says his publication “doesn’t make recommendations” and that “no matter how I slice and dice the data, I cannot support [Mr. Grimaldi's] claim of being No. 1 for that five-year period.” According to Mr. Hulbert, Mr. Grimaldi’s highest rank from the digest over that period was 25th out of 110.

Mr. Grimaldi says he ranked No. 1 over that period: “I’ll say that to my grave.”

Memo to Mark Grimaldi: whether or not you were ranked and/or recommended by Mark Hulbert is not a matter of belief, it’s a matter of fact. And Hulbert is on the record saying very clearly that he did neither. If you say that he ranked and/or recommended you, to your grave or in any other context, you are lying.

Which brings me to Grimaldi’s strongest defender:

Ms. Orman declined to address specific questions about the newsletter or Mr. Grimaldi’s background. “Mark Grimaldi is my trusted partner in The Money Navigator,” she said in an emailed statement. “He is ethical, honest and achieves stellar results that consistently outperform the market. I’m proud to be able to provide our newsletter to people who are looking for solid financial advice.”

Lying about being ranked by Hulbert Financial Digest is, needless to say, neither ethical nor honest. Which means, on an unsympathetic reading of Suze Orman, that she’s lying too.

When I spoke to Orman last week, she made it very clear that her relationship with Grimaldi’s newsletter was no different than her relationship with the Approved Card — she’s an owner of both of them, thinks that both of them are very good products, and is proud of them both. (The same goes for her FICO package, too.)

Orman also told me twice that the newsletter was rated number one — she was adamant about that. And now it turns out that it isn’t. I spoke to Orman on Tuesday; maybe Zweig hadn’t contacted her with his questions yet at that point. But at best Orman is extremely incurious about the “fabulous” newsletter that she is so keen to hawk and defend. And at worst she’s happy lying about it being ranked highly by Hulbert.

And that’s not the end of the Grimaldi/Orman sins, either. Check out this table — which is still up on Grimaldi’s website:

old.tiff

It shows that the S&P 500 rose by 19.79% in 2009. Which, as Zweig points out, isn’t true: the S&P 500 actually rose by 26.46% that year. And that’s no isolated mistake, either:

In nine of the 10 years cited, the newsletter understated the performance of the S&P 500. “I’m not perfect,” Mr. Grimaldi says. “We don’t claim to be.”

Getting the performance of the S&P 500 right isn’t something only perfect people do — it’s a basic prerequisite for anybody claiming to beat the index, and it’s pretty easy to find. And given that Grimaldi can’t get the performance of the index right, I have no faith whatsoever in the numbers he’s putting forward for the performance of his portfolios — numbers which are very hard, if not impossible, to check.

This week, the newsletter carried a note saying that the 2009 performance return was a “typographical error”. And indeed the same table on Suze Orman’s site has been fixed:

new.tiff

The 2009 figure has been corrected to the right number. But 2004, 2005, 2007, 2008 and 2010 are still too low, while 2006 is too high — 2009 is the only year which is exactly right!

Here’s something else which is weird: check out the total return for the S&P 500 in each of the two tables. While the 2009 return has gone up, the value of a $100,000 investment on 1/1/2001 has gone down! Only by a little bit, of course. But it’s hard to see what calculation could possibly have resulted in that small decrease.

Meanwhile, as Mick Weinstein points out, the portfolio recommended by Grimaldi’s newsletter prominently features Grimaldi’s own Sector Rotation Fund — and Grimaldi’s Sector Rotation Fund is the kind of thing that no sensible long-term investor should touch with a bargepole. When Weinstein wrote his post, the single largest holding of the Sector Rotation Fund was the ProShares Ultra S&P 500 leveraged ETF — and, if you look today, it’s still the top holding.

But levered ETFs, as we all know, are short-term investments, which to a first approximation should never be held for a period of longer than one day. They have no place at all in a long-term retirement fund. And the fact that Grimaldi is investing in a leveraged ETF at all is all the information any investor — including Suze Orman — needs to steer well clear of him.

Orman and Grimaldi defended their newsletter, both to Zweig and to me, by saying that it doesn’t really cost $63 per year: Orman is always out there with offer codes allowing you to get a trial issue for free, without even handing over your credit card information. But a free newsletter is no good at all if it gives bad advice — and any newsletter which thinks you should buy Grimaldi’s Sector Rotation Fund as part of a long-term retirement strategy — or at all, really — is giving bad advice.

I’m disappointed in Orman for telling her readers that they can beat the market. I’m disappointed in Orman for implying to readers that if they spend $63 per year on her newsletter, then they are likely to beat the market. And I’m extremely disappointed in Orman for getting into bed with Grimaldi in particular, who charges a management fee of 1.65% for investing in his Sector Rotation Fund, despite the fact that all he’s doing is buying ETFs.

And of course all of this rubs off onto Orman’s other products, too: the tar of the Money Navigator newsletter is going to wind up getting brushed onto the Approved Card, whether it deserves it or not. Which is yet another reason why we need a new personal-finance guru — someone who can replace Orman and judge her products impartially.

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