Personal finance media should be boring
- February 28th, 2013
From the classic Seinfeld episode, “The Pitch”:
Russell: Well, why am I watching it?
George: Because it’s on TV.
Too many investors take to heart George Constanza’s idea that because something is on (financial) television they should pay attention to it. When the opposite is likely the case: the more something is discussed the more likely it is already well-discounted by the market.
Jeff Miller at A Dash of Insight in a recent post notes the many ways in which financial pundits make mistakes which investors can easily avoid. It is not necessarily a coincidence that the pundits financial television continues to put on the air gets things so wrong. This is large part because the media is not necessarily seeking the truth, rather they are seeking ratings. As Miller writes:
Truth is harder to sell than fear.
Barry Ritholtz at The Big Picture asked whether relative to the sequestration debate whom we should believe: the markets or the media? As Ritholtz notes both are prone to irrational behavior but for the media it is different. Ritholtz writes:
With Media, irrational behavior is a feature, not a bug. The goal is to attract a large audience that can be monetized with adverts. Hence, there is an incentive to emphasize the outrageous, the ridiculous, to create buzz and hype. An entire subspecialty dedicated to studying memes and viral events has arisen to capitalize on this. It is considered an advantage when media spirals into their regular fits of hype. From a business perspective, “Irrationality” to organizations that sell audiences to advertisers, is quite a rational behavior.
Josh Brown at The Reformed Broker notes an even more salient point for investors. That is, what see in the media is not really what matters to investors. Brown calls it a “big disconnect” and highlights ten reasons why this is the case. He writes:
The financial media is irrationally addicted to trading stories because they have urgency and they’re entertaining, even if ultimately unsatisfying to the 90 million Americans who are trying to figure out what to do with their wealth. There is a relentless focus on analyst research calls, upgrades and downgrades, economic data releases, merger and acquisition buzz, hedge fund activity etc. This is all highly interesting and I personally enjoy both consuming and creating this type of content as well. But it should not be the only thing on the web / airwaves. It is disproportionately dominant when compared to its actual utility for the majority of the audience. There is a huge content arbitrage opportunity here.
Moving from the purely financial, Seth Godin had a great post up talking about the media and how “real-time news is neither.” Godin notes how the media’s desire to break news ever faster has decreased its utility for the viewer. In short, we can safely avoid the rush to judgment and sit back and wait to let history play out. He writes:
In the last ten years we’ve redefined breaking news from “happened yesterday” to “happened less than fifteen seconds ago.” The next order of magnitude will be prohibitively expensive and (most of the time) not particularly useful. Better, I think, to hustle in the other direction and figure out how to benefit from well-understood truth instead of fast and fresh rumor.
The best investors focus on “well-understood truths.” I spent an entire chapter of my book on “smarter media consumption.” So this is a topic close to my heart, therefore it is worth noting:
What should be clear from this is that the members of the financial media are not looking out for your best interests. Nor should we expect them to. In investing we talk about somebody having a fiduciary duty toward another person. This means the person with the fiduciary duty is legally obligated to act in your best interests. The members of the financial media have no such duty. They are there to entertain and by extension generate ratings, subscriptions, and page views.
In a certain respect, writing about personal finance, like investing itself, should be kind of boring. The principles that underlie sound personal finance practices don’t change all that much. For instance, there are only so many ways you can tell people to save more and spend less. The financial media is compelled to try and make things more interesting than they seem.
So if time spent on financial media is for most investors a waste of time, STOP DOING IT. As the old joke goes:
SMITH: Doctor, it hurts when I do this.
DALE: Don’t do that.
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- Thursday links: understanding Wall Street
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- Wednesday links: the multiplier effect
- Tuesday links: knowledge alone
- To bond ETF or not: an excerpt from Rational Expectations by William Bernstein
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- Sunday links: paralyzed with fear
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- Saturday links: ripe for disruption