Are You Being Served?

I am amazed at how much time and effort goes into media reporting about the capital markets. The vast array of Internet, print and broadcasting coverage is truly astounding. We can now enjoy (if that is indeed the right word), 24/7 coverage of all the markets and all the factors that influence them. Every day we can see periodic updates on commodities, bond prices, economic data, government press releases, currency rates, and on and on. An investor might look at all of this coverage and data and reasonably conclude that he or she is pretty well served by all of this. After all, there must be demand for this kind of stuff, otherwise why would they keep churning it out?

But is the investor really being well served?

It seems to me that capital market reporting falls into two basic areas: 1) Here is what happened and 2) Here is what the experts think about this. Whether it’s an earnings release, market trend (higher commodity prices, etc.) or some kind of event (a bankruptcy, for example), the media is all over this “news” with commentary and analysis.

Regarding 1) -- Call me old fashioned, but I thought the stock market was supposed to discount future events and trends. In theory, what is happening right now should have been discounted by the market weeks or even months ago. This is often the reason that when a company reports earnings below (for instance) consensus, the stock can actually rise on that “news.” Sometimes the market is truly surprised by some news and this is probably worthy of the attention it gets. Trouble is, the media seems to struggle with which items are real surprises and which are really already known by the market. The other big issue I have with most of the commentary I hear from the media, is that it rarely puts the event or news item in any kind of investment context. Great, the unemployment number was X – but how does this number fit into the recent trend? Are there details in the other numbers (beside the headline ones) of the report which may provide some insight as to what the numbers are really suggesting? What is the bond market saying about this number? What about the forex market? Why was this number 25% below the lowest estimate from among all the 76 people providing estimates for it (this was true for the May 2009 jobs number)?

Regarding 2) – Where do they get these people? It seems the media can always find some “expert” to ruminate on any given topic, no matter how big or small, arcane or mainstream, controversial or commonplace. More often than not, this “expert” will be the person with an opinion or outlook quite far away from the consensus -- the average is boring, no? At least in the media’s view… So, inevitably, this person’s viewpoint and forecast will often contain a high degree of error attached to it (mathematically, this has to be true, if this person’s opinion is far from the consensus; it could prove to be correct, but statistically, the odds would be lower). Often, the media will line up an investment professional (trader, mutual fund portfolio manager, analyst, etc.) to comment on some trend or stock.

Now let me ask a very direct question – why would someone appear on television and offer, for free, a value-added opinion that could help some make money in the market, when this person has clients who will pay for that opinion? Other than the answer that comes from an old Eagles song (… it’s a certain kind of fool who likes to hear the sound of his own name”), I would argue that NO ONE would do that. In my experienced (and obviously cynical) opinion, these folks are SELLING SOMETHING! It may be that they want you to buy a stock they already own. It may be that they want to you to be impressed with their searing intellect and buy their fund. It may be they are just amassing face time which will help them sell their next book. Whatever the motivation, I think it is safe to say that the interests and needs of the individual investors listening to their story may not be at the top of their priority list.

I have always thought that investment advice is worth what you pay for it. Those offering free advice have no fiduciary responsibility, cannot offer opinions appropriate for the needs of specific investors and are not accountable in any way for their opinions. You certainly would not buy a used car from a person who had this kind of freedom from consequence. Why would you ever buy a stock based on this kind of opinion?