The Financial Commentary 'Peter Principle'

The world of financial commentary now has its own version of the Peter Principle.  There are so many outlets -- financial television, podcasts, mainstream blogs, individual blogs -- that the editorial process has been overwhelmed.

In the old days -- that would be a couple of years ago -- publication in certain trusted sources would provide some confidence about the general reliability of the sources and the content.  No more.

The hunger for content, ratings, and hit count is driving the process.

The Herb Greenberg Example

Tonight's Kudlow and Company included a typically aggressive exchange between Herb Greenberg and Don Luskin. [link apparently unavailable] Luskin's point, for which we cannot find any particular defense from Greenberg, is that he makes quite a number of "common man" general assertions without any particular evidence.  Since he is a handsome, intelligent, and articulate speaker, he probably has quite an impact with viewers.

And that is the problem.  The world of financial media has become very democratic.  In voting, this is a good thing.  In expertise, it is not so good.

Luskin praises the Herb Greenberg of old --- someone we also followed every day.

I remember a decade ago Greenberg was a razor-sharp newspaper columnist who had a well-earned reputation for blowing the whistle on companies who were playing fast and loose with financial facts. Back then if you owned a stock that Herb wrote about, you were in trouble (and so was the company you were investing in).

That is how we remember it also.  What happened?  Luskin continues:

Whenever I see him now, instead of talking in depth about subjects of his own choosing about which he has real knowledge, he is trying to improvise uninformed responses to ad hoc big-picture market or economic topics or stocks in the news -- and he's no good at it. To live up to his "brand image" as the bear, the skeptic, the curmudgeon, he just spouts contentless generalities -- he raises doubts, he adduces dark possibilities, he emphasizes the risks. But there is no value in that. Everyone has doubts. Everyone knows there are dark possibilities. Everyone knows there are risks. Value is added when you take a stand, express an opinion, synthesize the possibilities into probabilities.

Luskin does not have comments, but he reproduced an email from one Forbes Tuttle (who seems, via Google, to have made a number of astute comments in various places):

Years ago (10-15), when I wrote research -- on special situations -- Herb Greenberg used to phone me up and ask questions about certain stocks, and stories. He was a good reporter. He asked insightful questions. He wrote interesting and thought-provoking stories. Now he is asked to have opinions of the broad market and the economy of which he has no background in experience or training upon which to base such opinions. This is the mistake of television news and opinion broadcasting, where reporters and journalists interview other reporters and journalists. From a substantive perspective, it is really quite boring...

Our Take

A few months ago we noted Greenberg's own words -- his belief that economic expertise really did not matter.  He figured that his years as a journalist were just as good as training in economics.  We urge readers to review the entire article, where we explain the error in this idea.

Anyone who thinks that it is possible to draw valid economic conclusions without understanding economic methods is like the pigeon at a poker table full of pros.  In future articles, we shall provide a few examples.

A Final Thought

Ratings and popularity generate momentum.  Since so many are seeking higher hit counts and ratings, no one wants to criticize a big player (like Greenberg).  When the popularity is so high, and there is no criticism, the journalistic community pays more and more attention to the most visible bloggers.

The result is a dangerous, lowest common denominator system.  Those who cater to the impressions of investors build a readership, but do not serve their readers well.  By comparison, the best economic analysis is often a bit dull.  It requires data and expertise.  It may challenge existing beliefs.

A challenge for investors is that most of the "economic commentary" is noise, not signal.

Comments

[Jeff]

Greenberg reminds me of Alan Abelson from Barron's who thought the DJIA in 1983 was overvalued at 1100. He was, and is such a bear, that he missed about 10,000 points in the rally. My really bearish friends always forget about the historic 9% upward drift in the US stock market.

Good post, by the way.

Jeff

[John Forman]

Great post. Your later points about journalists becoming analysts are ones that are particularly relevant from my view.

I'm a stock market analyst by day and sometimes get interviewed for articles by reporters. I watch them quite frequently take a viewpoint and then pick the quotes from folks like myself to support it, instead of doing it the other way around as they should (assuming you even think there's value in listening to professional commentators at all). It's a disservice to say the least.

As for Herb, I respect his ability to stand up to the punishment he regularly receives, but his common man views highlight just how ignorant and easily manipulated the public can be on subjects.

Keep up the good work,

John Forman
Author - The Essentials of Trading

[adam warner]

not disagreeing with your take, but to me the problem is less with Herb and more with Financial TV. We have a very specialized biz and very few of us could talk with any particular expertise on every single subject. Yet they bring Herb and assorted others on for long segments and just take it as some sort of fact that if they are intelligent, they have an insightful and accurate opinion on every subject. And what Dave said above too, everyone also has to become either a monolithic Bull or Bear, and their take on every subject has to fit into that mold. Not a whole lot of value-added there.

[David Merkel]

Well, Greenberg will be going back to research, and that will hopefully re-rail him.

It's a danger for any of us if you get a following to stray from your core competencies... even generalists have to take a step back and stay that they don't know a given area deeply, and tread lightly.

Luskin is an interesting character, though, and I remember that occasionally back in the older RM days, he and Greenberg would lock horns -- bull and bear. Luskin eventually melted down on the RM CC on 6/7/01, OpenMarkets soon after, and Greenberg went from RM to Street Insight, but found he missed dealing with non-professionals, and jumped to MW.

I had many good e-mail exchanges with Greenberg in the early days, and one with Luskin too (over why dividends are beneficial). They're both bright guys, no doubt, but being predominantly bullish or bearish tends to make me tune out, because I know their story already.

Thanks for the post.