If there was ever a day to review the difference between the positive and normative econoblogospheres it is on the day after the Federal Reserve announces open-ended quantitative easing. The ongoing challenge for readers of the financial media and blogosphere is distinguishing between fact and opinion. I spent a whole chapter of my book talking about smarter media consumption and way back in 2008 I wrote this:
There is room for both approaches, positive and normative, in the investment blogosphere. (There is even room for a dose of snark as well.) However we do need to distinguish between the two. In short, facts are not opinions, and opinions are not facts. Mixing up the two can only lead to confusion.
Not only confusion but it can lose you money especially at a time when we are venturing into uncharted economic territory. Barry Ritholtz at the Big Picture had a great post this morning talking about the need for investors to have “situational awareness.” He notes how QE has been a “blind spot” for many investors and has gotten them off their game. Ritholtz writes:
I know my job is to look out over the world and assess where opportunity and risk lay. I can critique people’s analytical errata all I want on the blog all I want but that is merely a mental exercise — not what I actually get paid for. Clients do not give their hard earned cash to managers who are the most acerbic critics of fill in the blank; rather, they go to money managers who know how to navigate around whatever it is that is driving asset prices. And these days, that is the FOMC. “Critique the Fed but manage your assets” is the monetary policy equivalent of “Praise the Lord and Pass the Ammo.”
That is not to say that any of this easy. Josh Brown at The Reformed Broker takes a first pass on a new playbook for the QE3 era but recognizes that changing strategies on the fly is not easy. Brown writes:
This business is not about making calls and sticking with them for the sake of being able to say you were right all along, it is about processing new information that will make a difference and dropping the opinions that have been invalidated. I come to work every day hoping I’ll be able to do that. It’s easier to write about than to actually do. Is your decision making process flexible? Are you hung up on what “should happen” rather than what is likely to happen?
Armchair pundits are a dime a dozen. They provide you their opinions on the economy and stock market for free because that is what their opinion is worth. In the end you alone are in charge of of portfolio and have to make the difficult decisions necessary in a highly unique investment environment. So along the way make sure you are not confusing opinion for fact. Nobody said any of this would be easy, but distinguishing between the positive and the normative will hopefully prevent you from getting too far off track.
Update: Just saw that Phil Pearlman has a post up this morning on the same topic. Here is a prime cut:
Smart people can criticize and rail against reality all day long everyday forever and do it nobly because leaders the world over HAVE made a giant mess of things. But such nobility is underperforming and you can see it in persistently punk hedge fund performance numbers.