Clash of the Financial Pundits

financial pundits“There was never a century nor a country that was short of experts who knew the Deity’s mind and were willing to reveal it.” – Mark Twain.

These days there is more information coming out of the financial media than ever before. In their recent book, “Clash of the Financial Pundits”, Joshua Brown and Jeff Macke express it as “Each day, investors are barraged with more advice, regardless of the batch delivered the day before. Each week the lights are flashing brighter and the volume is growing louder. Each passing year brings more confusion, not less- more opportunities to be lead astray.”

CNBC, Business Insider, Yahoo Finance are all in the business of getting people to watch, not just inform. Readers are the key for the Wall Street Journal, Barron’s, Kiplinger’s and other publications. And, then you have the investment newsletters. It’s mostly entertainment, drawing attention and making money- for them.

Definition: “Pundits give opinions in an authoritative manner usually through the mass media.” To become well-known and well-paid, pundits know that certitude is the key: He who comes off as the most sure in his/her opinions will attract the most attention. Research shows that our brains have a natural aversion to uncertainty and have discomfort not knowing what comes next. Many individuals want cocksure experts. It’s no surprise that Ben Stein, a noted financial pundit with an up and down track record, says “I am paid to pontificate.”

Former star pundit James Altucher says there are two ways to become a successful pundit: One is with greed, the other with fear. “If you work with greed, you propose to make people money. Or you work with fear. There are always going to be people who want to be afraid because that’s sort of evolutionary psychology.” Of course, some sales pitches use both fear and greed.

Pundits have been around for centuries. When Robert Harley came up with the idea of the first joint-stock offering in England, the South Sea Company, he knew he needed marketing. He hired a fleet of writers, including Jonathan Swift and Daniel Defoe, for his press releases. Warren Buffet once said, “Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.” Jeff Macke sees it this way: “What the financial experts seem to have in common is that their biases are almost always on full display. ‘Everyone talks their book’ is a way of saying that if people are offering an opinion, it’s most likely colored by the way they are currently invested in the market. This is human nature.”

In short, financial news is often filler, or worse yet, misleading, and emotional nonsense, with opinions offered as analysis. Furthermore, it is often prediction driven and experience shows us most predictions are worthless. So, what are we to do?

Consider some or all of the following:

  • If you are going to follow the pundits, make them accountable. Diary their claims and follow up using an app such as FollowUpThen.com
  • Focus your TV and written consumption. Create a shortlist of objective individuals who collectively can understand complex financial issues and communicate them, reduce economics to understandable basics, and provide insights and help you understand common mistakes investors make.
  • Consider listening to shows such as “Masters in Business on Bloomberg Radio”. Rather than a 15 minute interview of stock picks and predictions, these will be one hour of longer in depth interviews by Barry Ritholtz with key financial people such as Jeff Gundlach of Doubleline, Arthur Levitt, former SEC Chair, and Sheila Bair, FDIC Chair. The first radio/podcast was run on July 12, with nine more to follow.
  • Ask your financial adviser what they do to reduce the “noise” and get more signal in their media consumption. What is their consumption? How do they use that to provide more value to you including education on key topics?
  • Or, pour yourself a beverage and let DWM filter the noise for you. You may have lots of better things to do with your time than to try to keep up with all the financial pundits these days. You can always call DWM if you need anything. That’s why we are here.