An interesting comment thread broke out on yesterday's post about people going on CNBC and the like only to be very wrong about something "important" enough to overly influence people. One reader picked on Louise Yamada for calling for the SPX to drop down to 500 (taking the reader's word for this).I am reminded of a bit Norm MacDonald did as Larry King on SNL;
Between taking Tylenol tablets and taking Tylenol gel caps, I'll take Tylenol gel caps anytime.
To make that relevant to this discussion;
Between being completely wrong on national television and being completely right on national television I'll take being completely right on national television anytime.
No one says anything on the air or in print with the hopes of being wrong. At a very basic level every market participant, ranging from total Homer to legendary guru, will get some portion of opinions right and some portion wrong. If you get the bigger decisions right or are right a little more often than you are wrong you will probably have a good long term result. Ending up with a good long term result will not preclude you or anyone else from being wrong about certain things maybe very loudly wrong.
I imagine that most people go on TV, get interviewed in print or write a lot of market related content are looking to help their business by becoming a "quotable source" as a friend of mine who is a marketing consultant would say. The first thing I ever got published was a short writeup in Barron's and after that I wrote some articles for the Motley Fool (the Fool was absolutely dreadful to work with). The motivation was not to develop a readership, I thought that was unrealistic, but to have a couple of published pieces where hopefully I was right about something that I could use to show prospective clients.
The way things evolved I realized I had a chance to help people, more people than I could ever manage money for, become a little more knowledgeable about the subject. Perhaps I am naive but I would assume most non-hucksters have both business and altruistic reasons for media appearances and writing. Maybe you disagree with altruism as a motivation but I think it would be difficult to disagree with the business aspect of this so to that extent no one tries to be wrong.
So if most pundits have a combination of good and bad calls, what the end user should do with any of this be it on TV or in print? If you can see your way to agree that the vast majority of pundits are not wrong 100% of the time then perhaps you are left trying to figure out whether the person you are listening to or reading is correct today or incorrect.
Instead of that though I submit it would be better to listen to what someone says and then decide whether you agree with them or not and why or not. For example with my blog posts early on in the bear market. Before it "officially" started I thought it would be a normal bear market down about 30% which would have meant a low somewhere near 1095. Upon reading my logic along with info from other people some readers left comments saying that there would be no bear market and why they thought so and other readers left comments saying it would be a lot worse than a normal bear and why. This was a productive dialogue that covered a lot of ground and I think someone could have taken all of the opinions to draw their own conclusion about what might happen.
Then later on I was pretty consistent in thinking that the market would not spend a lot of time below the November low and I said why. Again there were comments agreeing and disagreeing with vary degrees of emotion and logic for you to take it all in and decide for yourself what you thought. FWIW I count ten days from late Feb to early March that the S&P 500 spent below the November low.
To the point about participants being right and wrong along the way I'd say I was generally right about the bear coming, certainly wrong about the magnitude and right (for now) about how low it would actually go (or more correctly not go).
If you look at most people's work you will (repeated for emphasis) see some correct calls and some incorrect calls. Instead of blaming a pundit or praising him take his process, along with process from other people and create your own process and draw your own conclusions. Just remember that you drawing your own conclusions will have a combo of good and bad calls just like anyone else.
Part II will be this weekend's video post.
24 comments:
I've learned to reduce my investing angst considerably by focusing on what's right rather than who's right. A diversified portfolio, coupled with indicators like the 200 dma or other crossovers, doesn't give me much to brag about at cocktail parties, but is sure less stressful.
For those who enjoy trying to separate the wheat from the chaff, I'd recommend A Dash of Insight at oldprof.typepad.com. Nobody is more objective.
You are speaking about a lot of commentators like yourself. Some right a lot, some not so much.
You are ignoring idiots who go on CNBC touting positions they know to be wrong. They intentionally try to put lipstick on a pig and sell it to the public. IMO there are tons of them on CNBC.
Remember Blodget? He was wrong. Knew he was saying things wrong. Admitted to it in emails to friends.
OK most people are not going to be stupid enough to document there lies. That does not mean they do not know they are trying to sell the public BS.
I still think watching CNBC costs me atleast $50/hr if I follow their comments
anon 6:01, you are correct I am assuming that people are not going on with criminal intent.
I may have a little hypebole in my comments but you are to naive if you do not see the regular touting of bad stuff on tv.
IMO there is media and there is media. W CNBC et al there is simply a never ending stream of random THs and there is no accountablity. They can find, and do look for, someone who will articulate any nutty point of view, with sincerity. IMO the principal interest of TV is to spur controversy not inform. W blogs there is some accountablity. Readers will come back and say - wait, your earlier post said. If totally off the wall blog readership declines. Blog authorship accountability does not exist in the random TH format commonly used w TV. IMO CNBC’s a waste.
I had a fellow finance guy use the term "financial pornography" for the CNBCs etc - not necessarily saying not to watch them, but know what you are viewing may not be high literature...that was the first I heard the term, alhtough he may not have been the original minter.
I find that there are two types of planners, PMs, etc. - those that love finance for all that it entails, and those that do it for the money. I have seem many many "pros" with far less altruistic motives with billions of AUM because of marketing v. people who are creative, thoughtful, good, and with true altruistic motives suffering through a breakeven practice. I don't have an answer, but I wish there was a way to differentiate the two in a straighforward fashion. Thanks for the thoughts. Have a good weekend.
What some folks might call criminal, or at least grossly unethical behavior, the sell-side would just call profitable tactics: Sometimes it pays to increase the excitation level to churn the marks, sometimes calm them down to deliver a soothing reassurance, and always seek to bias the rules to make it more difficult for the marks to escape.
In that vein, when the SEC solicited public commentary on a proposal to reinstate the uptick rule, they got a clear winner from one Benjamin N. Dover III that has been making the email rounds and can be read in its entirety at http://tinyurl.com/clp6xt
After pointing out that the uptick rule hardly goes far enough, Mr. Dover provides the SEC with a review of the "six time-honored truths" that the SEC should honor. I'll list them here but you have just got to read the original ms for the explanations and logical course of action that follow including why the SEC should ban any selling at all (I howled but no coffee came out of my nose thank goodness):
Truth #1: Stock Market Crashes Are Caused By Stock Sales.
Truth #2: True Investors Buy And Hold. Forever.
Truth #3: “Buy And Hold” Guarantees An Ever-Rising Market.
Truth #4: A Rising Market Makes People Happy.
Truth #5: The SEC’s Job Is To Stay Out Of The Market When It’s Rising And Step In To Appropriately Alter The Rules When It’s Falling.
Truth #6: Stock Sellers Are Short On America.
NB: Given the knowing irony in the rest of the piece I strongly suspect the calculation in "Truth #3" that buy-and-holding the Dow since 1932 would have resulted in "an annualized return of over 370%" is also intended to be ironic but, just for those who may not be aware how large the difference can be, Dover is representing the DOW price increase as a simple interest calculation. This was a favored tool of the sell-side for years until it was banned because, real annualized compound return (ROI) is usually a much smaller number: In this case, the price increase of the DOW represents an ROI a little less than 8% (a good return btw but you can probably see why the sell-side is barred from tempting buyers with simple percentage return calculations).
good stuff RW, thank you
General market commentators like roger can be more objective (may not be right but can be objective)
Lots of talking heads represent a sector fund (gold, small stock, commodities, whatever) These talking heads beat the drum for their product if it is over priced or if it is a bargain. Just one example of relatively honest horrible information from CNBC
http://finance.yahoo.com/tech-ticker/article/243376/Ex-Bear-Jeremy-Grantham-Now-a-Snorting-Bull%2C-Says-Stocks-Going-to-Moon
Yardeni: rally to 1,000 and expects emerging markets to lead recovery. Good read.
http://www.indexuniverse.com/sections/features/5814-ed-yardeni-qa.html
Sure looks like an increased appetite (or at least greater tolerance) for risk is going on: This rally could have more legs than I originally thought.
RW. Did Ben Dover take into account that the purchasing power of the dollar over the past 76 years has declined by 94%?
http://tinyurl.com/qngtoa
Roger,
The Yamada - CNBC piece:
http://www.cnbc.com/id/15840232?video=1054650849&play=1
Recent commentator on Yamada piece:
http://www.forexhound.com/article/Stocks/Stocks/Did_this_Rally_Turn_Louise_Yamada_into_a_Bull/130363
Jeff From Milan, Italy
Roger I like to paraphrase you “Back when the selling was unrelenting a lot of people got very scared, there were very emotional comments left on this blog along with many other sites a I read.” I said that the scariness was added by the financial TV media that perhaps did its part. You actually were different by saying that people are going out to restaurants and perhaps things did not look as bad. My performance has suffered somewhat because of the Yamada piece. I did not take as aggressive position as I would have liked. But you are correct one must way the plusses and the minus, and take responsibility.
But I can tell you what objective journalism could do: recall histories which is based on facts. Did you hear on TV about the 1837 financial crisis and what happened? Did you hear on TV what John Maynard Keynes did at the bottom of the ’30? The other co-participants have had the same experience as me that the TV financial shows are based on sensationalism and that they did their part to get everyone in such state. Luckely I have had some good run but look at the people that had 30, 40, and even 70% losses. I have been commending you for your objectivity and sincerety. But look at the the others at CNBC. I send an email at cnbc europe back on july 15, 2008 about purchasing an airline stock on the basis of oil price drop. The response was that fuel cost has nothing to do with earnings and stock price. Further I was told by such “professional”, “if you do not want to have your italian lira fly out of the window then you better stay strapped and do not buy airline stocks. Good thing I did not ask about the previous trade on jblu made from 3.85 to 4.20. You see there is no objectivity, it is all about emotions. I appriciated the piece when Stinhard was on the show back in late march or beginning of april when on that piece it was sayed “ if the market is going up on bad news than it really wants to go up”. You see there is reasoning, logic, history in such comment. I have only been trading now since 2007, and objectivity is really important to a new person like me. I do not need emotionalism, since I myself tend to be emotional. And when I do not understand things rather stop and do nothing for the fear of losses.
Jeff froom Milan, Italy
I enjoy watching people come on CNBC and making short term predictions...
Rolling dice has a better chance of being correct...
The fools are those who listen to CNBC, and think they are actually learning something new...
Roger,
"The way things evolved I realized I had a chance to help people, more people than I could ever manage money for, become a little more knowledgeable about the subject."
Yes indeeed, as a dedicated reader I can honestly say that you have helped me much over the past few years and I have learned a lot from your approach.
I sincerely thank you for sharing your knowledge and expertize in such an altruistic manner.
SA.
SA, thank you for the kind word
Roger,
This morning I have read your post again. You are correct that one must be a judge of what the person is saying instead making it part one one self due to that person's reputation. This post I will frame it since I know it will help me next time.
Best,
Jeff from Milan, Italy
Hi Roger,
I too would like to thank you for all you do, learning your process has helped me very much. But I have a question. You said you added a small position in SDS, and that if the market goes up another 5% or so, you will add a little more. You also said you will add long exposure if we cross the 200 day moving average. Doesn't that mean you will adding short and long at pretty much the same time? Wouldn't these moves cancel each other out? Perhaps I'm not understanding you correctly. Could you clarify the thinking behind this?
This discusion seems to me like saying - "I predicted the results of 10 coin flips and I was right 5 times- so you can see that, while not perfect, I have some level of insight into coin flipping".
1) Statistically you didn't get any of the calls "right" (there was no increase in what would be the expected random results) and 2) (this is the important part) - there is no such thing as insight into coin flip results.
What would you think of someone who went around saying they had expertise in predicting coin flipping results and what would you think on someone who said they thought that group discusions on the reasons for and against predicting "heads" was helpful.
I am a big fan RR- but this stuff just seems uninformed to me. Predicting the future is different that recoginizing the current situation. Predicting the future means not only predicting the event you are interested in correctly - but also predicting everything else that will happen in the future that will effect the event you are predicting.
It is a lot easier to know where you are right now than to know where you will be next ______.
if we go up to the 200 dma and I add a little more SDS and then we go through the 200 dma i could either sell SDS (although it will become less of a drag the further everything else moves up) add some more long exposure or both, depends on what it looks like but i would expect to add stock and wait on the SDS.
You fail to miss the point once again Rodger.
1. Financial TV is paid for by advertising.
2. 1/2 The Pundits Will Guess Correct and 1/2 Will Guess Wrong.
3. You will keep watching and argue about the absurd psuedo-science you consider "investing"
4. Financial TV will makes its commission.
Same scam as pulled by wall-street, they get there commissions and you lose.
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