Clash of the Financial Pundits: A book review by Bob Morris

Posted on: November 3rd, 2014 by bobmorris

Clash of Financial PunditsClash of the Financial Pundits: How the Media Influences Your Investment Decisions for Better or Worse
Joshua Brown and Jeff Macke
McGrAw-Hill (2014)

“Pundits are people, too”…for better or worse

Early in the narrative, Joshua Brown and Jeff Macke observe, “As in all aspects in life, there are legitimate commenters in the financial world, and there are charlatans. These are people who genuinely want to get things right, and there are those for whom deception is more profitable. In this book, we explain that it has always been thus. Throughout history, the names and situations have changed, but the conflicts have not. Everything that has already happened will happen again.” They go on to point out, “This book will make you a smarter market participant and will give you a heightened level of awareness as you survey the investment landscape. It will reveal the tricks and idiosyncrasies of your favorite talking heads, in some cases humanizing them enough so that you can extract the best of what they have to offer while sidestepping the rest.”

I am among those who are not actively engaged in investments. However, I was keenly interested in the information, insights, and counsel provided by Brown and Macke and the nine pundits whom they had extended conversations. More specifically, I wanted to gain — and did gain — a better understanding of the mindset used by “media influencers” to obtain, organize, and evaluate a veritable tsunami of financial information. The quotations inserted as head notes add seasoning to the “stew” that Brown and Macke prepare for their reader’s consumption. For example: “Markets are never wrong, opinions are.” (Jesse Livermore), “Our job is to find a few intelligent things to do, not to keep up with every damn thing in the world.” (Charlie Munger), and “There are clear lines separating those who swear by [Joe Granville] and those who swear at him.” (Louis Rukeyser).

These are among the dozens of passages of greatest interest and value to me, also listed to suggest the scope of Brown and Macke’s coverage:

o Jim Rogers (Pages 11-27)
o South Sea Bubble (30-34)
o Ben Stein 35-46)
o Using financial information (23-24, 99-100, 133-135, and 236-237)
o Karen Finerman (51-68)
o Joe Granville (69-79)
o Henry Blodget (81-100)
o Predictions (101-109)
o Icahn-Ackman fight (111-120)
o Herb Greenberg (121-138)
o James Altucher (139-154)
o Confidence (155-157)
o Barry Ritholz on investment advisors (166-168 and 178-179)
o Nikola Tesla (172-173)
o Jim Cramer (191-219)
o Accuracy of expert predictions (235-236)

Here in Dallas near the downtown area, there is a Farmer’s Market at which merchants offer slices of fresh fruit as samples. In that spirit, I now present these brief excerpts from some of the clashing pundits:

“The only way survive a recession in the investment world is to see what’s going on. Somebody once said, “Don’t fight the Fed.’ Or there are people who’ve said, ‘Don’t fight the tape.’ You cannot fight reality, because the market is going to go straight ahead and bowl you over if you just stick with your views and fight what’s happening in the world, the changes of the world. One cannot do that. I mean, if I gain 10 pounds, I can’t fight. I can’t try to make my suit smaller to fit me. I’ve got to somehow accept the reality that I’ve gained 10 pounds.” Jim Rogers (Page 17)

“I’ve lots of these [powerful personalities] on Wall Street. The only I thought was particularly smart was not on Wall Street but on Farnham Street in Omaha; that was Mr. Buffett. They are not stupid, not like they’re juvenile delinquents, stupid. They are great geniuses like Warren Buffett. As far as I can tell, there’s only one real genius I’ve ever met in the world of investing, and that’s Buffett, and I’ve met very smart people but they’re not on Wall Street. People on Wall Street don’t impress me as being particularly smart.” Ben Stein(38-39)

“Markets are, as Michael Mauboussin notes in his book The Success Equation, ‘a complex adaptive system, being acted upon by millions of individuals who do not behave according to any predetermined set of rationales or rules. This plain and simple fact is what condemns all market timers to inevitable failure, regardless of the depth of their experience or the calibration of their indicators. And when elaborate stage shows and a rock star mentality begin to enter into the equation, you can pretty much hang up your spurs right then and there. Because that’s when the ride is over.” Brown and Macke (79)

The truth is in the market. If you and I talk about the market today, you might have a strong opinion, but you don’t know what the market is going to do. Neither do I, and neither does anyone on TV. People are just giving their opinions, and then something will happen; and some of the people will have expressed opinions that were right, some of them will have expressed opinions that were wrong, and it will look like some people knew what was going to happen. Nobody did.” Henry Blodget (88)

“In May 2013, a research paper — written by a pair of grad students from the Washington State University economics program — proved what many of us already knew: he who comes off as the most sure in his opinions will attract the most attention…Knowing is not the thing — it’s acting like you know. Good enough, this is exactly what the public wants anyway. But don’t be fooled. Do your research and know the good pundits from the bad. Be alert enough to the fact that the amount of confidence with which a forecast is delivered does not add to its probability of coming true, even though your brain has evolved to see it that way.” Brown and Macke (155 and 157).

“I’ll never forget reading in The New York Times, Ben Stein saying subprime is such a tiny percentage of the overall economy that it was meaningless. And I just wanted to say, ‘Imagine if your oncologist said, ‘Well, we found a tumor, and it’s malignant, but really, you’re a 200-pond guy, It’s a couple of grams, said — I wouldn’t worry about it.'” Barry Ritholz (167)

Again, I wish to express my deep appreciation of the wealth of information, insights, and counsel that is provided in this volume. I highly recommend this book to those whom Joshua Brown and Jeff Macke probably had in mind for a primary audience but also for countless others such as I who are eager to fill substantial gaps in their financial education. We are advised: “The media will call upon the voices and faces of the pundit firmament, doing its best to select the most knowledgeable experts it can, even if that means settling for the most available ones.” It has been ever thus and always be so we are urged to remember one basic truth: “Pundits are people, too.”

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