There is no shortage of market opinion out there. Between CNBC, Fox Business and Bloomberg, there are 72 hours per day of non-stop financial chatter on television, and we haven’t said anything about the market segments of general news stations like CNN or the cacophony of voices on the Internet.
The challenge today is not finding information, but rather filtering it. And that is where Josh Brown and Jeff Macke step in, bringing us Clash of the Financial Pundits — the “first-ever book written to tackle this most daunting component of investing: our guide to help you become a more informed consumer of financial news and conjecture.”
A book about financial punditry written by financial pundits might at first sound a little self-serving. But Brown and Macke do a fine job of explaining to readers how the sausage is made in the financial media, and Clash is an eye-opening collection of interviews with some of the leading personalities that have shaped the industry.
The interviews with Jim Rogers, Jim Cramer and Barry Ritholtz alone would make Clash a book worth reading.
A little background is necessary here. To start, what exactly is a pundit? A pundit is a subject-matter expert who frequently gives their opinions to the public — what you might pejoratively call a “talking head.”
“Expert” can be something of a subjective term, and a lot of the advice that is shared over the airwaves can do more harm than good. So, how do you separate an insightful pundit from the noise?
Brown and Macke offer some suggestions for questions to ask:
- Who is the expert, and what firm or organization does he represent?
- What does her professional affiliation mean in terms of the opinions she’s sharing?
- Does he have the same time frame or investment objectives that I do?
- How many ideas is she generating each day or week? How much thought is going into each one?
- What are the consequences for him if he is wrong? (Note: This is major bugbear of mine. A person giving advice should have skin in the game. If they recommend a stock, they should own it themselves.)
- How does the opinion I’ve just heard relate to my own portfolio or investing goals? Is there any real relevance?
- Why am I reading or listening to this in the first place? Intellectual curiosity? Entertainment? Or do I have an actual need to employ this sort of information?
- Is there a publicly available archive of this person’s previous opinions and forecasts? Have they been mostly accurate or mostly wrong? What were the driving factors behind the accuracies or the great calls? Luck? Skill? Good timing? Strong research? Some combination of these elements?
Perhaps the greatest insight from the book — and one you should always remember when watching a very convincing speaker — is that “The practiced pundit is making appearances and dropping quotes for the benefit of a firm or a career — not necessarily for your benefit.”
Never forget that point. Financial punditry is not charity. Every person you see expressing an opinion on TV, radio or in print has a motive, whether it be furthering a career, espousing a political ideology, or simply boosting their own ego.
I’ll leave you with two related points.
Brown and Macke suggest — and I agree with them wholeheartedly — that a market commentator’s most important trait is not experience, intelligence or even honesty. It’s humility. Given enough time, the market will prove us all wrong. Be wary of anyone who seems excessively cocksure. Their arrogance is either a mask for underlying insecurity or it is due to a lack of experience.
John Maynard Keynes — a man with no shortage of strong opinions — one said that “When the facts change, I change my mind.” He was on to something. You shouldn’t take advice from a pundit who refuses to acknowledge when they are wrong — or refuses to even acknowledge the possibility that they could be wrong.
Secondly, in getting a following, confidence is more important than being correct. In times of uncertainly, people crave black-or-white answers; shades of gray are unsettling.
As Brown and Macke write, “We want to be told exactly what’s going to happen and what to do about it.”
You’ll have to fight your basic human instincts here, but be careful not to be swayed by the pundit with the most enthusiasm in their voice. Listen to their arguments, weigh them and make your own decision.
Clash of the Financial Pundits is a must read for anyone who enjoys financial media. My compliments for Brown and Macke on a book that needed to be written.