There aren’t many quiz shows left on TV but among history’s most famous was The $64,000 Question. It was broadcast on CBS from 1955 to 1958, based on an earlier radio version with a top prize of just $64. It was a huge ratings success until the scandal involving the competing quiz show Twenty-One and its winner Charles Van Doren made the news. In order to keep ratings high, the sponsors of both shows influenced producers to select appealing winners in advance, then supply them with answers in various ways. When this story broke, Twenty-One was cancelled immediately and The $64,000 Question followed soon thereafter.

Even allowing for inflation, increasing a question’s value from $64,000 to $16,000,000,000,000 takes considerable effort, or perhaps, a concerted lack of effort. As I write this article, the 2012 elections are just weeks away and Congress is functionally in recess with members having returned home to run for reelection. In their absence, of course, nothing is being done about either developing a balanced budget or dealing with those sections of the tax code which are due to expire at year-end.

In the meantime, the government must continue to function and it’s the job of the Department of the Treasury to keep money flowing. Their efforts allow our elected officials to continue receiving paychecks and other agencies to pay their bills too. Everyone knows that our economy is just coming out of recession, so it’s no surprise that people and companies aren’t earning as much as they once did. Of course, reduced levels of income mean the IRS isn’t collecting as much in the way of tax dollars. When there’s not enough income to cover expenses, anyone might borrow a little money to fill the gap. In this case, the Treasury has borrowed about $16.1 trillion.

We all know that history sometimes repeats itself. Please take a moment to think back to August of 2011 and you may recall a similar situation. At the time, our debt limit of $14.5 trillion was rapidly being approached. One response to the looming crisis would have been Congressional action resulting in a balanced (or at least a more balanced) budget but that was not to be. Instead, the borrowing limit was raised to the current $16.4 trillion level through the Budget Control Act of 2011. That allowed everyone to breathe a sigh of relief, certain that the issue would be dealt with in plenty of time to avoid another crisis. Unfortunately, Congress has done nothing more than point fingers across the aisle and we are currently facing yet another crisis, this one described as the “fiscal cliff”.

With borrowings of $16.1 trillion and a limit of $16.4 trillion, something needs to be done. The Treasury has several tools it can employ to stay below the limit but they are short term in nature and are very obvious when put into use. There’s no hiding the fact that our government will once again be facing some difficult decisions. Last year’s crisis brought significantly increased market volatility and a reduction of the country’s credit rating. That rating downgrade was generally unanticipated but this year all three major agencies have our government’s debt on watch for a further downgrade. The agencies have said they’re likely to take such action unless:

• Congress produces “specific policies” that will stabilize the negative debt-to-GDP trend (which is forcing increased borrowing);
• Their efforts succeed without leading to a significant fiscal shock which would limit the ability of the economy to rebound;
• The process for another debt increase is orderly, avoiding additional market volatility, and most importantly;
• An agreement about increasing the debt ceiling is reached before the Treasury is forced to put those short-term tools to work.

I would not expect another round of downgrades to produce disastrous results: they didn’t last time and the possibility of additional ones has been loudly telegraphed by the rating agencies. As cynical as I am about politics, I believe our economy is inherently strong and that it can weather this storm if reasonable accommodations take place within a reasonable time. Unfortunately, at least to the best of my knowledge, no producer is standing in the wings ready to feed answers to the contestants. Congress will have to come up with them on its own and - just like on live TV - everyone’s watching.

I don’t watch very much TV but I happened upon CNN’s mid-day market coverage one day last week. This will not be news to regular viewers but I was nearly overwhelmed by the amount of information being offered. In addition to a series of stories in the main window, there were four sets of market quotations crawling across the screen, two at the top and two at the bottom. On the right side, there was more detailed information about specific companies, brief stories from other reporters and a calendar of future market-related events. Below that was a repeating cycle of promotional messages for upcoming CNN programs, usually including video. Finally, the reporting in the main window was periodically replaced with a suggested stock trade. From my perspective, the only good news was that the sound was off in the restaurant so I didn’t have to try to listen at the same time.

As I watched, I tried to understand the appeal of what was being presented. How could a viewer possibly expect to assimilate and filter this barrage of information, let alone do so quickly enough to make a timely financial decision? Even if an investor could accomplish both tasks, how could the information be used to get ahead of the crowd, which seems like the most obvious reason for wanting it? Of course it’s illegal to trade on true “inside” information but I can see that would probably be an effective strategy if such data were available. My question for CNN watchers: If you are one of hundreds of thousands of viewers, how unique is this information likely to be? I.e., if everyone else gets the same news at the same time, how can you hope to profit from it?

Most people I speak with understand the intrinsic value of seeking their own path instead of following the crowd but I’d like to share a story from investment advisor Don Hays. He was addressing a group of investors and asked those who considered themselves contrarians to raise their hands - almost everyone did. Of course, by definition the majority can’t be contrarian. When it comes time to make investment decisions, most individuals act more or less in concert with the rest of the group. Their best intentions aside, people apparently find comfort in being part of the crowd.

Beyond looking to information sources such as CNN, some of those making their own investment decisions belong to the American Association of Individual Investors. This is a national organization which provides a template for forming and operating investment clubs. These clubs allow individuals to gather with friends in a safe and structured setting to learn more about investing. The AAII polls its 150,000 members weekly regarding their level of optimism about the stock market and compiles their responses into a Bullish/Bearish sentiment report which is updated every Friday. This report is one of the primary data points I consider when making strategic investment decisions for my clients. I pay attention because the sentiment of this group has been a nearly perfect contra-indicator of upcoming market actions. For whatever reason, it seems that investors operating in groups tend to make poor decisions.

According to news headlines, investors have poured nearly a trillion dollars into bond mutual funds since the beginning of 2008 while withdrawing about $400 billion from stock funds. Presumably this has happened because people who were not prepared for the market correction wanted to move to the seemingly safer haven of bonds. Of course, this rush of new money pushed bond prices up so early investors profited from the shift. When the tide turns, those who have most recently invested will have the most to lose and, if history is any guide, will be among the last to sell. These crowd-followers are all but guaranteed a loss when interest rates rise again.

This scenario has been replayed time and time again. Those timid souls who remain out of the market until confidence is high and there appears to be no remaining risk are the very ones who always seem to pay the price when the market turns, as it inevitably does. We live in a risky world but most risks can be managed in one way or another. Unfortunately, following the crowd has rarely proved to be an effective way to do so, especially related to investment strategy.

As Groucho, the Marx in today’s title, famously said: ” I don’t care to belong to any club that will have me as a member”. Investors may want to consider his stance regarding the value of following the crowd and think about taking independent action instead.