There’s a whole lot of noise out there in financial media these days. Investing blogs are everywhere, CNBC and Fox Business Network broadcast investing advice 24 hours a day, and even when the U.S. market is closed there’s some issue in an emerging market that threatens to affect stocks at the next opening bell.
So how can you make sense of this, tuning out the noise and tuning into the information that matters?
Jeff Macke — the current host of Breakout on Yahoo Finance and one of the founding fathers of CNBC’s Fast Money — recently penned a book to help you do just that.
His book, Clash of the Financial Pundits (available here on Amazon and co-written by fellow pundit Josh Brown), is an exploration of how pundits make calls and sometimes even move markets.
But it’s also a guide into how financial media works, what makes pundits tick and how individual investors can better use the information at their disposal to make more money.
The book’s most valuable section, in my opinion, includes these tips on examining pundits, offered by Jeff Macke and Josh Brown:
- Who is this 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? Will we ever hear more about this idea in a follow-up?
- How does the opinion I’ve just heart 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?
I love this list. And the only thing I would add to it is:
- Buy Clash of the Financial Pundits, both to improve your media literacy and to have a better understanding of just how the financial advisory business works.
A Conversation With the Author
Author Jeff Macke has a lot of great advice on how to navigate both the markets and financial media. But mostly, his advice centers around embracing personal responsibility and the imperfection that is inherent with investing.
“Your goal is not to really become a master of investing or trading, it’s to be able to become at least up to the level where you know what you don’t know and you don’t get yourself in trouble,” Macke told me last week via telephone. “Don’t do things like day trade the hot IPOs, or pay more commissions than you should, or stay uninvested because you’re just going to sit on the sidelines with 50% cash and wait for a pullback, or start thinking things like the market should do something or else.
“You have to be an informed investor and ask the right questions, but it doesn’t mean answering everything yourself.”
Asking the right questions doesn’t just involve searching for the best big investment opportunity, either, but also searching for the right place to get your financial news.
“‘Consider the source’ is rule No. 1, whether you’re on the playground or watching television or whatever you’re doing,” Macke said. “For some reason there’s this void in understanding of financial media that it’s a product. That, when people would criticize CNBC on the up days for being a bunch of cheerleaders … that’s a ludicrous criticism; It’s a television network. It’s being run by people who are not finance majors who are not even necessarily CFAs, and it’s being produced like a television show is produced like MSNBC, like Fox News, like all of them are produced — by generally younger people who are getting on the phone and calling folks who can articulate their ideas in friendly soundbites and look good doing it.”
In other words, Macke said, if you’re blaming the pundits for leading you astray … you should probably look in the mirror instead.
“The people who are harshest on pundits usually have a problem with their own level of accountability,” he said.
The trick is to understand that being personally accountable does not mean being perfect. You will be wrong sometimes, but that’s OK. After all, even the greatest investors get it wrong — and in the book, Macke has some great conversations with pundits from Jim Cramer to Jim Rogers to Ben Stein about their mistakes and how they learned from them.
In fact, making mistakes gracefully — and honestly — is actually a more important quality than most think.
“The commonality, the theme that runs through each of the conversations is that these people have been wrong, they’ve made mistakes and they’ve learned something from it,” Macke said. “If you’re in the business of judging the pundits, look at the ones who have handled mistakes and how they’ve gone about their process and how it has changed them — to be wrong or right in public. That will tell you a lot about whether or not you want to listen to them.”
So if you’re willing to make some mistakes, how should you invest right now?
“If you’re in this game, you’re just going to have to concede the fact you’re going to want to take a couple flyers in there. Well, put 10% of your portfolio away and do that, knock yourself out,” Macke said. “If you truly believe and feel like you understand two or three companies, then create your own little portfolio.
“But your staples, your main food, you’re kind of bread and water should be index funds. That should be your core position — long the S&P 500 — because man, it is tough to beat.”
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks.