How can investors use financial blogs to inform their decisions? At "A Dash" we seek to explore this question since we have a blog about a book -- one that is aimed at the intelligent individual investor.
Background
We hope to describe some important roles for financial blogs. We expect to provide some criteria by which investors can reach their own conclusions. A good starting point is to consider both the positives and negatives from the rapid growth in financial blogging.
One might well question what could possibly be negative about providing more information. That is our own predisposition, probably shared by the rapidly expanding community of bloggers and readers.
Our reason for raising the question in this way is simple and twofold:
- Despite the growth, most investors do not use this resource.
- There are many traps and pitfalls for blog readers.
The very elements that provide the strength from blogging also introduce problems.
An "Outside" View
Today's Investment News described a survey reported in Spectrem Group’s monthly High Net Worth Advisor Insights newsletter. While a subscription is required for the newsletter, some of the important findings are highlighted in the article, "Credibility of financial blogs is questionable".
The survey found that (only) 14% of 758 wealthy respondents "admitted to reading" at least one financial blog. The "blogs" cited most frequently were actually from rather mainstream sources like the Wall Street Journal, Yahoo! Financial, The Motley Fool, and MSN Money.
“There seems to be a disconnect as to what is a blog and what is a legitimate article,” said Eduardo Eusebio, editor of the High Net Worth Advisor Insights. “Maybe the media is encouraging blogs, because the line between a financial blog and a financial news story is becoming more blurred.”
The quality of the information is questioned.
Robert Ellis, a New York-based senior analyst at Boston-based Celent LLC, noted that the top five blogs in the survey are all from credible sources, but he added that there are many shady options in the wealth management “blogosphere,” which is 1 million websites strong.
According to Mr. Ellis, blogs can be broken down by those that use credible sources from professional journalists and others run by non-professional sources and non-journalists.
“When a blog is written by a respected journalist who is an expert on the topic that they are writing about, I see that as somewhat beneficial,” he said. “With a blog, you can get additional feedback, and I see that more as enhanced journalism than financial advice.”
However, blogs run by non-journalists are “just dangerous,” Mr. Ellis said. “You don’t know about the credibility of the author, and you don’t know the credentials of the respondents on the blog.”
Considering these Conclusions
A main theme is that blogs by journalists are more dependable than blogs by non-journalists. This is certainly worthy of some debate. Our own impression is that articles published in mainstream publications are subject to fact-checking and editorial discretion. Blogs from the same publications are much more free-wheeling and controversial. Journalists are not always objective experts.
The policing of facts and interpretation in blogs comes from other blogs that raise questions and provide challenges. This process is effective only when the "gatekeepers" of the financial blogs, those who highlight articles and point readers to those of relevance are willing to accept that role. If the gatekeepers who highlight articles are reluctant to cite contentious refutation, then the process breaks down.
What Blogs Do Well
There are some clear-cut advantages to the growth in financial blogs:
- Discovering little-known facts. The work of many thousands in seeking information makes it available to more people -- much better than it could be done in mainstream media (MSM).
- Diversity of opinion. Viewpoints that lack general acceptance gain visibility and consideration.
- Speed of dissemination. Breaking news quickly finds its way around the blogosphere. Posting is swift and so are the citations.
Where Blogs May Introduce Danger
- The wide array of facts may create a "he said, she said" environment where the reader has no basis for checking validity.
- Diversity of opinion has a leveling effect. Many readers may find it difficult to discriminate between those with strong presentation skills, but faulty analysis, and those with a better analytic method.
- Speed kills. When information moves quickly, everyone is trying to break a story. Even MSM may be pushed into reporting before facts are checked.
Conclusion
Financial blogs represent a new source of information for investors, still underutilized by most. Making the most of these resources depends on both the evolution of the blogs themselves and the ability of investors to spot strengths and weaknesses.
Our thinking on this is a work in progress, so we hope to generate some discussion and comments.
