Portfolio manager performance art
- October 27th, 2011
We have mentioned any number of times why traders might want to avoid spending their time watching financial television. The other question is whether you really want your portfolio manager appearing on CNBC? An appearance on CNBC or any other financial television show is by definition a marketing appearance. Felix Salmon at Reuters writes:
As a general rule, it’s not a good idea to take investment advice from people who appear on CNBC a lot. CNBC Is a marketing platform: fund managers love being on there because it increases their visibility and the chances that people will want to invest with them. Think of it as a dumbed-down, glossy version of Seeking Alpha. But do you really need to be invested with the kind of people who are trolling for customers by appearing on CNBC? I don’t think so.
Interloper highlights the differences between two kinds of portfolio managers. The first is adept at attracting assets, the second is adept at managing assets. The first is likely to make multiple appearances on CNBC. He writes:
Again, I have to emphasize that there are a lot of cases where Tony Robbins-type managers are also very good investors and, alternatively, Ben Stein-in-Ferris-Bueller clones who should never be trusted with your money. But it remains important to understand the industry’s bias in this regard and that “best manager” may mean something much different to the average investor than on the trading floor.
The other challenge for investors is that these portfolio manager-types are often asked for opinion on matters way outside of their limited expertise. Josh Brown at The Reformed Broker notes just how shallow a manager’s opinion on CNBC may be:
7. Listening to gut traders. The gut traders on TV, while colorful, are really just regurgitating things that make them sound smart – they are not helping you invest. The anchor asks them a question about a stock and then the way their minds work is “OK, let me respond back with that thing I just read about that company hiring a new CEO or reporting a good quarter.” And then they say back that one nugget of information they’ve got on company ABC and then the conversation moves on. You’ve just witnessed someone with great recall, that’s about it. Phrases like “great management” or “best in breed” are total bullsh*t, but that’s what the gut trader works with. When you hear things like “Oh, I heard that CEO interviewed the other day, he’s a terrific CEO, best in the biz!” then you know you’re listening to a gut trader. That’s so old school, no one really makes money that way in real life.
Part of the challenge in watching financial television is understanding the approach a particular analyst is taking. For example Dick Bove appears to use his appearances on CNBC as a kind of performance art. Shira Ovide at Deal Journal writes:
Bove makes for good TV because he is unusually frank for a Wall Street analyst. Most equity research jockeys talk in squishy, caveat filled terms about what companies may do, unless they don’t. Dick Bove will have none of this wiggle room. He makes clear, and sometimes outlandish calls. Even if he’s wrong, he is nearly always entertaining.
The bottom line is that CNBC and the broader financial media is there to attract eyeballs and generate ratings. Portfolio managers (and analysts) are not on TV to educate but to market. Investing shouldn’t be particularly entertaining, and is in fact really hard work. It is hard to see how time spent watching financial television will help you meet your goals.
Do you want your money managed by someone who spend their time on CNBC? (Felix Salmon)
Portfolio manager search tip: find the worst public speaker possible. (Interloper)
That’s a money loser! (The Reformed Broker)
Dick Bove’s 5 most entertaining (sometimes wrong) predictions. (Deal Journal)
[repeat] Attention is a zero-sum game. (Abnormal Returns)
[repeat] The solution to market related noise. (Abnormal Returns)
Abnormal Returns is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com. If you click on my Amazon.com links and buy anything, even something other than the product advertised, I earn a small commission, yet you don't pay any extra. Thank you for your support.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
Abnormal Returns has over its seven-year life become a fixture in the financial blogosphere. Over thousands of posts we have striven to bring the best of the financial blogosphere to readers. In that time the idea of a “forecast-free investment blog” remains as useful as it did six years ago. More »
- Sunday links: history of bubbles
- Top clicks this week on Abnormal Returns
- Saturday links: nothing new under the sun
- Friday links: stop doing things
- Simplify your investing to avoid ‘opportunities for failure’
- Thursday links: having it both ways
- Wednesday links: two gigantic bubbles
- Tuesday links: anomalies have no soul
- Monday links: hindsight hinderances
- What books Abnormal Returns readers purchased in November 2013