Words have consequences

Words have consequences, sometimes unintended consequences. This is never more so the case that in the area of investing and personal finance. It would be nice if all of the players in the financial media would take some sort of Hippocratic oath but that is a pipe dream. There it is now more important than ever investors need to be more savvy consumers of financial media.* A good place to start is to recognize that everyone is the financial media is to one degree or another talking their book.

Talking your book is a staple of the financial media these days. Indeed without it the financial media wouldn’t exist. One need only look at the frenzy unleashed by Carl Icahn with his tweets about Apple ($AAPL) to see how savvy investors use (and sometimes abuse) the media to get their points across. Andy Kessler in the WSJ notes that nothing Carl Icahn has said (or done) has any real effect on long-term shareholder value. Kessler states that: “Apple should ignore him.”

Now the bond giant Pimco is in part blaming the media for bond fund outflows. Josh Brown at the Reformed Broker points out that Pimco has been a primary media participant in the bond market run-up and is now feeling the pain of the downside. Brown writes:

The financial media is not a toy to be used and discarded as you please. It is very serious about itself and it will swing it’s big, fat pendulum extraordinarily far in both directions – too far, eventually – thank you very much. This is how it works…The media was absolutely culpable in both the creation of the Bond Kings mythology as well as the notion that plowing huge chunks of one’s portfolio into low-yielding investments with interest rates having no eventual direction but up was somehow safe.

The point being is that words have consequences. When a financial analyst goes on 60 Minutes and predicts widespread municipal defaults investors take note. When a so-called “Bond King” says buy bonds, some investors will take that idea to heart. The consequences of publicizing these calls are not borne by the media but by investors. Investors should recognize that the financial media are NOT in the advice business. They are in the eyeball business. You and you alone are responsible for your investments.

There are some signs that investors are becoming more self-aware. For instance CNBC’s ratings plumb new lows. There likely a myriad of reasons for this including the rise of networks like StockTwits. Maybe it is the case that investors who have embraced the idea of index investing simply don’t want or need tick-by-tick market coverage. By taking a ‘media diet‘ they have removed the stimuli that lead to poor decision making. In my book I write:

Simplicity does not come easily for anyone who follows the markets on a regular basis. It is deceptively easy to get caught up in the day-to-day goings-on in the markets. The breathless tone of financial television and the bold headlines of the investment blogosphere all lead you to believe that the next piece of news or the next opinion is the most important thing you will hear all day. In the end, they aren’t selling news or analysis but rather a sense that you are in on the action.

Investors who think they are in on the action are wrong. Investing is hard. And it will only be more difficult if you are swayed by the whims of the financial media and the investment industry that provides it fodder on a continuous basis. Investors who have embraced a simple investment strategy may to a large degree opt out of the shoutfest. For the rest of of us knowing that you are being ‘sold’ should provide you some necessary skepticism.

*I spent an entire chapter of my book discussing this very topic.

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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.

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  • Tadas ViskantaAbnormal 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 »

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