By BRETT ARENDS
Year after year, Wall Street types mock the supposed rubes and suckers who make up Mom and Pop investors.
And sure, regular investors can make plenty of mistakes when it comes to investing.
But here's what the Wall Street pros don't tell you: They aren't a whole lot better. I sometimes wonder if they know anything more than the rest of us.
Yesterday two separate reports landed on my desk. Both showed how the big money honchos have been handling your savings and investments.
The findings? You probably don't want to know.
According to the latest monthly survey from Bank of America Merrill Lynch, these professional money managers now think gold is "more overvalued than at any time since December 2009." Those are Merrill's exact words.
In December, 2009, gold hit a high of $1,170 an ounce.
Today? Oh, $1,515. That's an annualized return of 19%.
You couldn't make it up. So much for "overvalued."
According to Merrill Lynch, these professional money managers have been saying gold is overvalued for years completely missing the massive bull market of the past decade.
Merrill's latest survey includes data for the past two years, as gold has nearly doubled. During that time these professional investment managers have called gold actually cheap just once, in January 2009. Every other month they've said: "Oh, it's overvalued."
It was "overvalued" in May 2008 at around $880 an ounce. It was "overvalued" in June 2009 at around $930. It was "overvalued" in early 2010, and it was still "overvalued" a year ago at around $1,200 an ounce. And it's still "overvalued" today.
Merrill says it no longer has data going back earlier, but if my memory serves, the big money honchos were saying the same thing about gold in earlier years, too. It stands to reason, too, as when gold was $300 or $400 or $500 an ounce, none of them owned it. And I paid some attention to Merrill's findings on the subject, because I happened to be the person who first suggested they start asking about gold, way back in 2004.
To be fair, money managers haven't been completely useless guides to gold. December 2009, when they said it was really, really overvalued, they had half a point. Gold had just had a big run, and was due a correction. It then fell 10%.
And maybe we're in the same situation now. Gold's had a good run so far this year, and summer is traditionally a weak time in the gold market, so maybe you'll get a better deal if you wait a bit, though there are no guarantees.
If this were just about gold, it wouldn't matter so much.
But over the past decade, money managers have been making an equally bad call about a much bigger asset class: bonds.
Merrill data show they have been calling bonds "overvalued" consistently since at least 2002.
And they've been singing the praises of stocks instead.
Meanwhile, over nearly all of that time, it was generally a far smarter move to have your money in bonds than stocks. The Vanguard Total Bond Market Index Fund,
This is what we're paying the big bucks for? These guys have been loaded up to the gunwales with stocks, holding too few bonds, and no gold, for a decade. Nice move.
I've noted before that, on occasions, their collective gaffes have been mind-boggling. They dumped their last remaining Japanese stocks right at the lows, in April 2003. Then they loaded up again in 2005, after Japanese stocks had already boomed, before bailing yet again. In June 2007, they fell madly in love with European stocks, and loaded the boat. Merrill called it "EU-phoria." European stocks then crashed.
Now let's turn to yesterday's second report, from pension consultants Mercer. It looks at how big company retirement plans are managing their investments.
And it turns out not owning gold is the least of their problems.
Mercer looked at all the final salary plans run by Standard & Poor's 1500 companies.
Bottom line? Many of these funds are still significantly underfunded. Even after the gerrymandered stock market "boom" of the past two years, they have only enough assets to cover 83% of their liabilities.
"Despite employer contributions of $77 billion and aggregate asset returns of $156 billion (a 12% median rate of return), pension deficits decreased by only $8 billion during the fiscal year," says Eric Veletzos, the Mercer principal in charge of the study.
An $8 billion improvement compared to total pension liabilities of $1.7 trillion. It hardly inspires confidence. And that's after a big rally.
Meanwhile, says Mercer, the aging Baby Boomers are nearing retirement and many plans "may be nearing the end of their 'growth' or 'accumulation' phase and transitioning to a 'spend-down' phase." Oh, happy day.
So managers are doing what you'd expect in situations like this. They are pinning their hopes on big stock market gains, and hoping for the best.
Typical funds are counting on investment returns between 7% and 8% a year, reports Mercer. There's just one problem: Many of them are also holding lots of low-risk, low-return bonds. In some cases they are holding half, or even two-thirds, of their entire portfolios in bonds.
And yet they are still expecting overall investment returns of 7% to 8%.
Hmm. Ten-year Treasury bonds yield a mere 3%. Even long-term AA-rated corporate bonds yield only about 5.3%, according to Barclays Capital. So if half your portfolio is in investments like these, how do you get 7% or 8% overall? Easy. You just tell people stocks will give you 8%, 9%, even 10% a year.
Good luck with that.
Brett Arends is a senior columnist for MarketWatch and a personal-finance columnist for the Wall Street Journal.