Clash of the Financial Pundits: How the Media Influences Your Investment Decisions for Better or Worse – Joshua M. Brown and Jeff Macke
Postmodern philosophy is a mishmash of confusing stuff—full of brooding people in cafes, trying to deconstruct knowledge and our modes of expressing it (like language). But a great investing lesson came out of it: Look at the medium, not just the message. When it comes to the financial press, all investors should be thoughtful deconstructionists. (But maybe ditch the part about hopeless brooding.)
Joshua Brown and Jeff Macke’s Clash of the Financial Pundits is a worthy tour of that medium, and will open your eyes to the business—yes, business—of financial punditry.
As we’ve said at MarketMinder forever: Think like an economist and ask yourself where the incentives lie. Well, what are the motives of financial media? To help you? To keep you über informed to better achieve your investing goals? Ha! No. It’s to sell advertising. So take all the principles of marketing and advertising as your guide, and you can start to see punditry more clearly.
First, use emotion to the fullest. Punditry needs to feel necessary, urgent. In the book, James Altucher says, “There are two ways to be a successful pundit. One is with greed, the other is with fear.” It’s true: Of the emotional hooks, fear tends to prevail. Henry Blodget adds, “For some reason, being negative always sounds smarter.” Either way, financial punditry pulls at the heartstrings more often than the head.
Next, ask yourself what product is really being consumed. Punditry is not new; the intensity of it is. People have always craved to be told about the future. In some ways, it’s a crude form of teaching and informing in small bites and to mass audiences. Which means platitudes prevail. One of the book’s best chapters is just a little over 2 pages, called “All Your Investment Rules Contradict Each Other.” Here are two great ones: “Never listen to someone who is talking his or her own book. But also never listen to someone who has no skin in the game.” Or, “The trend is your friend and stick with what’s working. But skate to where the puck will be and buy what everyone else hates.” All these nuggets are easy to digest, and sound wise! But plainly contradict. Yet, platitudes are the lifeblood of punditry.
Pundits aren’t explicitly insidious (sure, some are). They’re delivering a demanded service. Indeed, many if not most are in earnest. People want to hear this stuff. Successful punditry isn’t humble or measured because this isn’t what people want to consume. Ben Stein, himself an über pundit, says “I think I’m paid to pontificate.” And Macke notes:
The great thing about being an obscure economics commentator and making bold calls is that if you’re wrong, well, no one really remembers who you were anyway. In other words, there is very little risk. The rewards, however, of getting a bold call right, are incalculable.
This is how much of the newsletter and financial media industry operates because people actually want the bold calls, the certainty, the big home run forecasts. As an investor, you need to get yourself off this demand curve altogether—stop craving someone to tell you with such certainty what’s going to happen next. Instead, seek an adviser who will give you forecasts in terms of measured probabilities with your long-term goals in mind, and builds portfolios for you as such.
In today’s media world, there are so many venues, so much time to fill, so many websites to perpetually run stories. Ask yourself though, how many true “experts” could there possibly be? The answer: far fewer than it takes to fill up all that time and space. Barry Ritholtz says, “My experience is that there is a substantial percentage of people speaking on television who have no business speaking.” It’s too true. The simple act of stopping to ask yourself who exactly these pundits are will tell you a lot about whether you should entertain their views. Editors will claim maintaining quality in pundits is what keeps readers/viewers loyal to their channel or website. And there is truth to that. But the need to constantly be relevant and fill time tends to overwhelm with content that isn’t worthy.
As for the book itself; it’s a bit of a mishmash—full of short stories, polemics and long-winded (sometimes wandering) interviews. Stick with it. Through the many interviews and interludes, lessons and structure become clearer, culminating in a fine final chapter to put it all together. It’s a breath of fresh air for a book to force engagement rather than just state the punchline in the introduction. Most nonfiction books these days tell you the ending first, then all the chapters behind it are filler.
Lastly, a nugget from the authors to sum it up: “Regular news consumption helps you sort out what matters from what doesn’t,” but “awareness does not necessitate action.” This is the essence of navigating today’s financial media. Stay apprised, but realize the vast majority of punditry is noise. In the end, you don’t necessarily have to deconstruct it all like a postmodernist. You can always just ignore it.