A wise and good friend recently commented that he did not read any blogs. None!
He knows that I have a blog, and asked me if there were any (other than my own) that I would recommend. That is a topic worth considering, and I shall return to it. Meanwhile, I invite comment. The problem, of course, is that there is too much information. Those of us who read financial commentary all of the time are accustomed to absorbing many disparate sources and filtering the results.
Most readers cannot or will not do that, so what should I recommend? My friend wants a (very) few sources that he can read like a newspaper.
What Not to Do
Financial media, whether televised, print, or pixel, have incentives that are not aligned with investors. I realize that the readership of "A Dash" is sophisticated and includes many colleagues who are investment advisors. For a moment I invite you to pretend that you know nothing about the markets and tuned into CNBC today for the first time. Your TV dial strays to CNBC and you see a guest who says the following:
“The Dow 5,000 piece is very likely—that’s not even the extreme low,” Hefty told CNBC. “It only takes a few hedge funds to get that margin call."
"When they start to sell—and the fact that everyone’s on pins and needles—that’s where the freefall starts to take place, like oil back in 2008," he said.
This was actually a re-run from last week. The Dow 5000 piece got a lot of buzz and good ratings, so CNBC went with it again. They also did one of their silly "polls" of viewers. These are not scientific, of course, as they always note. The polls are popular methods of getting a lot of page views for the web site. The results tell you more about the viewers (and those bothering to vote) than any real information.
The poll asked respondents to choose between Dow 12000 and Dow 5000. The Dow was at (approximately) 10500 at the time. This type of bet can be great fun if it is fair and balanced. If the Dow is at 10500, you bet 11 versus 10 or 12 versus 9 --- a balanced choice, bull versus bear.
The Dow 5000 question is intentionally provocative and biased. Here's why.
Anchoring
There is a well-known behavioral psychology effect known as "anchoring." If you start an audience with an idea -- even a randomly chosen number -- that number has a powerful effect on their estimates of reality. It applies even in extreme cases. A favorite example invited respondents to state when Einstein first visited the United States. Several "anchors" were introduced including 1215, 1905, 1930, and 1992. The extreme anchors attracted an anchoring effect equal to the more reasonable choices. (from Heuristics and Biases, Gilovich, et. al.) There are other good anchoring examples in the Wiki explanation, but I want to emphasize that the extreme and biased posing of the question.
And what of the CNBC viewer response? As of my most recent check, 40% of respondents chose Dow 5000.
This may be an accurate reflection of the online community -- a mindset that is ultra-bearish, highly political, anti-government, anti-Obama, and generally sour about everything. It has little to do with rational investment decision-making. Briefly put, the rational investor is politically agnostic and always looks for the best opportunities. He/she is opportunistic, looking to buy when others are making foolish mistakes.
The CNBC spot does not help investors, but it might help their ratings.
Anchoring on Seeking Alpha
Regular readers know that I contribute to Seeking Alpha and find it to be a valuable source in my own research. My editor has made many valuable suggestions to improve my work. Used properly, the site is an extremely valuable resource. You can select certain people to "follow." These can be writers or readers who comment regularly. Everyone can get a thumbs up or thumbs down on comments. When I notice intelligent reader comments, I often choose to "follow" that reader, leading me to other good articles.
Here is what typically happens. Today there is a thoughtful article from a source with great credentials. The author actually uses data to support arguments. There is none of the profanity that seems so popular in online articles. He is restrained and thoughtful. As it happens, he arrives at a bullish conclusion.
The result? The article becomes one of the most popular on Seeking Alpha, mostly because it is a target for the bearish community. There are over 200 comments. The article was read, no doubt, by several thousand readers. Meanwhile, the comments are overwhelmingly bearish. Here is an example from someone who regularly makes lightweight comments with no reasoning or evidence in support:
This guy is a flat out crazy cheerleader. Someone get him a job on CNBC.
This "insightful" observation had 56 thumbs up and ten thumbs down. You can check other entries to see the trend.
Does this make a difference? I think that it does for the rookie online investor. The behavioral psychology evidence is pretty clear. No matter how stupid the comments are, no matter how few people are voting with the thumbs, it has an effect.
Investment Conclusion
There are many sentiment indicators and everyone wants to be a contrarian. My own read on sentiment relates to what I hear from individual investors. Most of them are paralyzed by fear.
Financial media of all types contribute to that fear. The investor is not well-served.
Meanwhile, if I had to recommend a single investment blog to my friend, which should I choose?
