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The Top 5 Financial Lies of All Time

It was hard paring down the list. After all, I can't think of a field that engenders more deceit than the one concerned with your wallet.

Just look at Madoff's $50 billion lie. Or take a gander at the rest of Wall Street and the moral depravity of the "liar loan" and other easy credit schemes. What sweet nothings were the mathematical models whispering to justify Bank of America's (NYSE: BAC  ) and Citigroup's subprime actions? How the heck can General Electric (NYSE: GE  ) and American Express (NYSE: AXP  ) be treated like banks for the purposes of government cheese?

But those aren't the biggest lies. They're too obvious, too well-known as lies. The real biggies are the ones we fall for over and over again, the ones that continue to suck our money right out of our wallets.

No. 5: Just about any prediction on CNBC
It pains me a little to say this, since Fools are frequent guests on these programs. Heck, we have CNBC on all day at Fool HQ.

Of course, we're usually poking fun at the reactionary, short-term thinking of the talking (nay, shouting) heads. Will there be a late-session rally? What's the outlook for retail in the next month? Does this week's unemployment report change everything? Does it matter?

Knee-jerk reactions are rarely profitable. Watch the financial news for entertainment and the latest financial goings-on. Don't watch it in hopes of discovering minute-by-minute market-timing tips.

No. 4: The idea that anything is a "safe investment"
No investment is 100% safe. None.

The bluest of the blue chips? They've cut dividends in record fashion the last few months -- and not just the financials, either. Dow Chemical (NYSE: DOW  ) and Harley-Davidson (NYSE: HOG  ) have both slashed their payouts recently.

Real estate is a no-brainer investment, because housing prices will rise forever? Apparently forever is shorter than we expected.

Even U.S. Treasuries are being called into question -- because they're just the latest asset bubble. Ironically, yields for Treasuries have been pushed down because people are flocking to what is widely considered the safest investment around -- but the prices of Treasuries will crater once the panic is gone and these yields shoot back up.

No. 3: "But this time it's different!"
I don't believe this line when it's spoken by people returning to bad relationships, and I don't believe it about questionable investments.

In fact, you can usually identify a bubble when you hear these words -- especially when they're followed by a faux-wise justification. I heard them during the dot-com bubble ("it's a new paradigm!"), during the housing bubble ("unlike other assets, housing prices never go down!"), and during the oil bubble last summer ("demand for oil will only go up!").

When you hear this line spoken by financial gurus, run, don't walk, from whatever it is they're recommending.

No. 2: "What's past is prologue …"
We must learn from history's mistakes, but we mustn't mistake history for the future.

For example, we all know about the tremendous returns U.S. stocks have produced over the last century, even factoring in this past lost decade.

But we can't simply extrapolate this performance out into the future. A hundred years ago, the U.S. was still in the relatively early stages of its economic development. Now it's a mature economy. Future returns will reflect that -- hence the importance of diversifying internationally into economies that resemble ours a century back.

And, finally, the No. 1 financial lie ...

No. 1: Your neighbor's a financial genius
It's easy to believe this one, since everyone has a great war story. Your neighbor identified Microsoft (Nasdaq: MSFT  ) in the late '80s before everyone caught on, or bought Google (Nasdaq: GOOG  ) right when it IPO'd. See the car in his driveway? He got it for well under invoice thanks to his shrewd negotiating. Or maybe he sold most of his stocks two years ago, brilliantly foreseeing all this economic turmoil.

I've got news for you. Your neighbor's an idiot.

OK, maybe he's not, but chances are he's not as smart as you think (or as he's telling you). The truth is, we only hear the good stuff. We never get a really good picture of people's finances. It's just not polite conversation to ask about your neighbor's salary, his credit card debt, or his true investment returns.

But you shouldn't get discouraged by the selective histories you hear. Financially speaking, it's never as good -- or as bad -- as people would have you believe.

Our retirement expert, Robert Brokamp, has seen this firsthand. He was a financial advisor before joining the Fool, so he's seen the reality of people's finances without all the bravado and whitewash.

And as the advisor of our Rule Your Retirement newsletter, he spends his days making sure we don't continue to fall for the financial lies spouting from the TV -- or our neighbors' mouths. He won't tell you his salary (I asked), but he does go through all the ins and outs of managing your finances, from allocating your portfolio to selecting the proper level of insurance to budgeting and taxes. You can read all his advice with a free 30-day trial. There's no obligation to subscribe.

Anand Chokkavelu owns shares of Citigroup and Microsoft. His neighbors think he's an idiot. Microsoft and American Express are Motley Fool Inside Value picks. Google is a Motley Fool Rule Breakers recommendation. Bank of America is a former Income Investor choice. The Fool owns shares of American Express and has a disclosure policy.


Read/Post Comments (21) | Recommend This Article (59)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 02, 2009, at 2:49 PM, ozzie wrote:

    Sorry - you missed the biggest financial lie of all time:

    "We will not be cutting the dividend". But I did enjoy the lies you did share. :-)

  • Report this Comment On March 02, 2009, at 2:54 PM, dsmason807 wrote:

    What about:

    "Of course you can afford this loan...(as long as I can sell it someone else quick)"

    Or:

    "These mortgage-backed securities should be rated AAA."

    Or the biggest one of all, in my book:

    "I'm a financial professional, you can trust me."

  • Report this Comment On March 02, 2009, at 5:20 PM, 102971 wrote:

    How about "If I just follow the recommendations of The Motley Fool, I can't go wrong"

  • Report this Comment On March 02, 2009, at 6:41 PM, dynazor wrote:

    Not sure if this qualifies as a FINANCIAL lie (but in a loose way it does) but it is certainly the BIGGEST lie of all time, and it goes like this:

    "I was in a northern city where it was so cold that I actually saw a politician who had his hands in his OWN pockets"

  • Report this Comment On March 02, 2009, at 6:53 PM, steveherb wrote:

    "I'm a financial professional, you can trust me." That's the winner of all lies!

    My lender - " I've been in this business for twenty years. Don't think I don't know what I'm talking about." That's what he said when I questioned the option ARM and placed my $70,000 down payment.

    My lender- " Real estate is a roller coaster. When you compare the margin index in an Option Arm to a fixed loan overtime, they work out to be the same in interest." I still don't understand what he was getting at. Then why didn't he just get me a fix? Oh yeah. He was using my stated income to push the loan through.

    Now my Loan Rescue rep. - " You can try to negotiate with your lender. But your only allowed a one time shot at it. You may succeed at dropping an interst point. But I can force them to follow the new FHA guidelines and reduce your mortgage even more. Better pay me $3000. before 2008 is over."

    Yes. Here I am. You can go ahead and stamp stupid on my forehead.

  • Report this Comment On March 02, 2009, at 6:55 PM, steveherb wrote:

    "Politician who had his hands in his OWN pockets"

    Now that's funny! Thanks.

  • Report this Comment On March 02, 2009, at 7:01 PM, TMFHelical wrote:

    Anand,

    Silly me, I saw the headline and assumed this was a post about lies told by financial institutions. In which case the top 5 lies would all be - "We intend to maintain the dividend".

  • Report this Comment On March 02, 2009, at 7:09 PM, xetn wrote:

    The biggest lie is: the more dollars in circulation equals greater wealth. Just ask the Fed. The real truth is: money is not wealth; it is only a medium of exchange.

  • Report this Comment On March 02, 2009, at 9:29 PM, tonylogan1 wrote:

    "Bear Stearns is fine" - Alan Schwartz.

    "Fill in the blank" is fine - Any other CEO

  • Report this Comment On March 02, 2009, at 10:58 PM, MORNINGSTARSCHOO wrote:

    BANKS ARE SAFEST PLACE TO MAKE GOOD RETURNS

    AND THE TRILLIONS IN DEPOSITS ARE INSURED BY AIG

  • Report this Comment On March 02, 2009, at 10:59 PM, MORNINGSTARSCHOO wrote:

    I LOVE THOSE LIARS

    THEY ARE SITTING IN THE BAC PEWS ONSUNSAY MORNINGS

  • Report this Comment On March 02, 2009, at 11:00 PM, MORNINGSTARSCHOO wrote:

    DISTRICT # 53 WAS THE OFFICIAL NAME FOR MORNING STAR SCHOOL

    GET YOUR FUNDS OUTA THE BANKS AND DOW ASAP

  • Report this Comment On March 02, 2009, at 11:01 PM, MORNINGSTARSCHOO wrote:

    BUT MY BROTHER KNOWS A GOOD ? REALESTATE BROKER AND HE SAYS

    ITS DIFFERENT THIS TIME

  • Report this Comment On March 03, 2009, at 12:52 AM, Rabbit15501 wrote:

    AIG's Liddy "I think there is a high chance to repay the taxpayer soon. The TARP may take longer. We are in a good position to recover.......of course that depends on the market."

    Sounds like a back door to me. No one can say he lied.

    Does that rank as the worst un-lie?

    Thanks for the chance to blow a little steam in good company. Likely we need it.

  • Report this Comment On March 03, 2009, at 7:01 AM, MORK000 wrote:

    THIS ISN'T A RECESSION THIS IS A DEPRESSION

  • Report this Comment On March 03, 2009, at 9:15 AM, bbubbz wrote:

    Obama: "change you can count on"......translation: a socialist takeover to destroy the top earners and bring everyone down to the same misery index.

  • Report this Comment On March 03, 2009, at 12:58 PM, sixxgunner81 wrote:

    "For example, we all know about the tremendous returns U.S. stocks have produced over the last century, even factoring in this past lost decade.

    But we can't simply extrapolate this performance out into the future."

    Umm...isn't that exactly the type of rhetoric that the Motley Fool preaches when it tries to make a point about saving and long-term investing?

    So, it's OK to extrapolate this performance when you're trying to sell people on a long-term investing philosophy, but it's not OK when the house of cards falls?

    I read TMF strictly for entertainment, because you have some excellent writers, but the contradictions leave me no choice but to write off the advice.

  • Report this Comment On March 03, 2009, at 2:04 PM, chk2595 wrote:

    Te biggest lies ever are from politicians before being elected and males before marriage.

    One has nothing to lose but a bit of pride. The other has everything to lose.

  • Report this Comment On March 06, 2009, at 10:25 AM, MIKEfrMNY wrote:

    The biggest lies are the bids in the options market.

  • Report this Comment On March 08, 2009, at 11:44 AM, MyPiks wrote:

    So you lost big time following one of our Motley Fool newsletters? Not to worry, you can pay us $5,000 for Duke Street instead of the $200 - $500 for a crummy newsletter, and make big money in the recovery. (BTW, we'll make even bigger money to make up for the people who won't renew their newsletters after loosing their shirts)

  • Report this Comment On March 08, 2009, at 11:08 PM, TTLump wrote:

    "BUY AND HOLD"

    "DIVERSIFY AND MINIMIZE YOUR RISK"

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Anand Chokkavelu
TMFBomb

Anand is the Editorial Director of Fool.com. He loves pithiness, clever turns of phrase, and analyzing the banking sector.

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