Information you need.......and do not get!

Consumers of investment information are getting short shrift.

I see three problems:

1. Producers of the big news shows are looking for the dramatic;
2. Journalists (with a few exceptions) have lost the ability to ask the important questions -- the ones that would help investors;
3. All media sources have been unduly influenced by email and tweets.  These come overwhelmingly from the trading community -- and these sources have dogs in this hunt.

A Deeper Look

Here is the problem.  There is a standard group of experts who seem to have the right connections.  This might include any of the following:

• Being famous for being famous.  I am reminded of Paul Lynde, famous for being on Hollywood Squares.  At least you knew you were getting entertainment.   I am open to suggestions for comparisons, but how about Marc Faber?  He is widely known for his doomster reputation, but what has he done for us lately?  He makes a regular appearance on CNBC where he gets respectful, softball interrogation.

Suggested questions?  What is the time frame for your current prediction of a 100% change of global collapse?  When did this prediction start?  Is it true that there is no way to avoid this disaster?

 

 

• Working for a big firm.  It is interesting that big-time media love to criticize the big firm's analysts, but also feature them.  This week there is a lot of buzz because one firm thinks that there is a big chance that the "fiscal cliff" will create a market collapse.  The firm notes the discrepancy between their outlook and their clients.  The lead member of the team is an undergrad math major with a background in real estate.  No one points this out. People seem to think that since he was hired to be the major portfolio guy at a big firm he must know what he is doing.  The same people would join in criticizing a "whale" trader or an analyst.

Suggested questions:  Since you are basing a big market call on a prediction about the American political process, do you have any political scientists on the team?  Did you consult anyone with a real track record on this subject?

• Ability to regurgitate the latest Wall Street truthiness.  My favorite current example is the intonation --- "Earnings estimates are too high.  They must move lower."  This has been repeated so often that I wonder if anyone is really analyzing the data.  I report the change in earnings estimates nearly every week.  It is not difficult to track this, and a smart consumer of information can find the best sources.

Suggested questions:  How much do you think that earnings estimates should be reduced?  What would the P/E ratio be at that level?  Do you have a personal track record in making earnings estimates, or are you a critic of the work of others?  If you are analyzing others, what is your record in finding the best sources?

• Making dramatic calls.  We all know that excitement sells and fear sells even better.  Current examples include two distinct groups
  
  • Those predicting a recession based on back-fitting hundreds of variables with a sliding scale on each.  This creates hundreds of degrees of freedom and invalidates the entire process.  I understand that only 1% of readers will grasp this, and that is the point.  Many are mesmerized by credentials and unable to evaluate the analysis.  Anyone can come up with a perfect "Auntie Mame" system after the fact.  If it didn't work, you would not hear about it.
  • Those predicting hyperinflation, generally based upon the loose assertion that the Fed is "printing money."  Since this fits the preconceptions of the audience, it is an easy sale.
  If someone is making a bold call, isn't it reasonable to ask a few basic questions?  When did you first make this prediction?  Has it ever changed?  Do you have any real-time record of success?  Does it include more than one instance?  (This is crucial since many pundits hang their hats on a single big call.  Readers might compare the current trader reaction to, say, Elaine Garzarelli and Abby Joseph Cohen, who are reviled, to the current crop of doomsters, who are celebrated).
• Something else -- a mystery component.  There is one frequent guest on CNBC is has been wrong forever, who has been completely inaccurate on the facts of money supply, who insults and interrupts everyone, who has shifted to multiple firms in a short time ---- and yet --- is a frequent guest on CNBC.  They must love this approach, but consumers should tune out his story.

Conclusion

I understand that this post is mostly critical of bearish analysts and the lightweight questions asked of them.  Obviously, I would also like to see tough questions to those who are bullish -- especially the perma-bull types.

As someone who offers a wide variety of investment programs -- not just long stocks -- I carefully study informational bias.  I am open to any approach, and I profit only if my clients do.  I highlight exaggerated fear because that is the current bias.

Comments

[arbitrage]

Hi Jeff. I totally agree with you. People seem to think that since he was hired to be the major portfolio guy at a big firm he must know what he is doing.

[jack]

seems hilarious you fall into the same method of half info you are attacking, (which i agree). Holding back the name of whoever it is (could be one of many) from your readers.

[oldprof]

Thanks to CD7 and Gerry. Maybe some of the questions will find their way to the right places!

Jeff

[oldprof]

truedolamite -- Thanks for filling us in on some of Faber's successful forecasts via his newsletter. It is always a challenge when the message to subscribers varies a lot from the public image.

The summary from his public statements is available at CXO: http://www.cxoadvisory.com/2875/individual-gurus/marc-faber/

He is widely embraced by major media, always treated with the utmost respect and never really challenged. He is one of the leading examples of succeeding by reinforcing fears, so that is why I cited him specifically.

Meanwhile, I am happy that you provided more color on his other viewpoints.

Thanks for joining in.

Jeff

[Matt]

Yeah, Faber's interviews are all gloom and doom marketing, not real market calls. His standard line is "Investment XYZ is going to get crushed, but it could see a 30% rally before that." So he really isn't saying anything.

[Matt]

Michael Pento, maybe? I rarely see CNBC except for 5-10 minutes in the morning, so I don't even know if he's on anymore, but he fits the description.

[thetruedolamite]

Hi Jeff,

I believe Marc Faber is a bad example here as a bearish pundit. Yes he has apocalyptic bearish views of the world and what is going to happen due to "all the money printing", but his actual investment calls are very reasonable and I feel he has been quite accurate. (Note that I subscribe to his newsletter). Not all of his calls are made in his tv interviews, but some are.

For instance, he has consistently recommended a diversified portfolio of short term bonds, cash, stocks, and real estate/hard assets (like gold). He has admitted his error in calling the long bond market completely wrong (something that many pundits do not do).

He believes we are going to have massive economic problems, but his investment advice on how to deal with these problems is not at all "doom/gloom and lock yourself away with your gold horde" type of style.

Some recent calls he has made:
He was buying Spanish/Italian/French equities this past summer, along with Italian bonds, and has since recommended that some profits be taken.
His most recent call is that one should consider taking a position in Chinese stocks has they have been down for so long and people view them very pessimistically.

Cheers

[RH]

Would somebody enlighten me...Who is the often wrong/seldom in doubt/multiple job hopping guest?

[Gerry Provost]

I agree with cd7. Your insight into the financial news reporting is spot on.
This "Big News" type of reporting is rampant in all our news coverage.
Thanks for trying to keep us straight.

[cd7]

Fantastic column, Jeff. Would that this form of
incisive questioning were alive throughout journalism.
Sadly, it's not, but as the old saying has it, 'why
wise up a chump?'