Last time out, our topic was the signal-to-noise ratio when applied to investing. We looked at how to reduce the noise you consume in your daily information diet. The goal was to help you become a less distracted, more purposeful investor.
This week, I want to focus on the “signal” portion of that ratio: Where to focus your attention so as to get more of the good stuff.
If you have read me for any length of time, you know I am less than enthralled with much of what passes for financial news. Most of it looks like meaningless filler to me. A lot of it is misleading, emotional, nonsense. Too much of it is prediction-driven — and experience has taught us that most predictions are worthless. Last, huge swaths of opinion often masquerade as analysis, and that does nothing for you. That someone else happens to like XYZ should be irrelevant to you as an investor.
Rather than repeat my usual whining about the financial press, I want to focus on how your use of media can add value to your investing process. (Okay, some whining might slip in, but I will keep it to a minimum.)
Ready? Let’s dive right in:
● Hold pundits accountable: One thing I detest most about the financial press is the lack of accountability. All sorts of nonsense is said without penalty. On TV, guests are rarely called out for terrible calls or stock picks. Columnists can say anything without worry of anyone remembering their really dumb statements.
I use a simple calendar trick to hold talking heads accountable. Whenever someone makes some wild claim or rolls out yet another set of predictions, I diary them. Any calendar or even your Outlook will work, but I especially like to use a simple app called FollowUpThen.com.
As an example, have a look at this letter published exactly three years ago, signed by a long list of economic wise men and politically connected policy wonks. It warns of “currency debasement and inflation.” My esteem for these folks’ economic judgment is now significantly diminished; each of the list’s signatories now get assessed as incompetent forecasters.
Second, I hold myself to the same standards, calling myself out annually. I publish a list of my worst errors each year (see this and this). Doing this is a humbling act that keeps me honest (and beats others to the punch). If I am going to trash others for their dumb predictions, I must at least hold myself to the same sort of accountability.
● Create your own media research team: I have a small group of favorites I deploy as my personal research team and my reality check. I subscribe to their e-mail, RSS and Twitter feeds, and read everything they publish. It doesn’t matter where they publish, I digest their total intellectual output.
My shortlist of people include Dan Gross (Daily Beast), an economic realist with a knack for cutting through the crap; Jesse Eisinger (Pro Publica) for his understanding of complex financial issues and his ability to communicate them clearly; Mike Santoli (Barron’s, Yahoo) has a great understanding of the Street; Bill McBride (Calculated Risk) reduces economics to its simplest essence; I devour all of Morgan Housel’s Motley Fool columns for their insight and smarts; few people can help you understand your bad investing behavior better than Jason Zweig of the Wall Street Journal. I am omitting lots of other regulars, but these are the first six on my do-not-miss list.
You can create your own shortlist of people whose analytical approach and perspectives add value. (Use the process of elimination; the prior accountability bullet point helps with this).
● Focus your financial television consumption: Truth be told, most financial television bores me. Two or more people discussing the latest economic trends or hot stocks is not especially entertaining.
Why is that? Financial TV is essentially filmed radio. Because it lacks compelling visuals, we end up with all sorts of over-compensation. We see an emphasis on meaningless data; the lack of visuals also drives manufactured conflict — the pseudo bull/bear debates that one producer told me makes for “compelling TV.” (I totally disagree.)
There are some worthwhile things to see on financial television: On Bloomberg Surveillance at 6 a.m., Tom Keene gives you the overview of what can expect from the day. On CNBC, my colleague Josh Brown is so insightful and witty that he makes Fast Money fun to watch. Before lunch, I search for UBS Floor Manager Art Cashin’s comments from the NYSE floor on CNBC. I find more wisdom in 30 seconds of Cashin than any other 10 pundits combined. Consuelo Mack’s Web show, WealthTrack, slows it down with in-depth interviews with investing legends.
I found more signal by making financial television “appointment viewing”: Bloomberg and CNBC post all of their video clips online. You can use that by watching only those folks you think are worthy of your time, and not the hours of mostly dumb sound effects and countdown clocks and other empty calories and filler.
● Become a better investor: Anything that can show you how to become a better investor should be on your shortlist of media consumption. The media content that focuses on improving your process, on understanding your behavior or on providing broader context is worth considering.
Skip the stock-picking nonsense, the bloviating opinion mongers and the forecasters. Experience has shown us that this sort of stuff is worthless. Focus on those in the media who are teachers, who can share their experience and hard-won expertise. You are much better off when you are taught how to fish than when merely given a fish.
I try to keep my media consumption consistent with my desire to better understand the world I live in. This means skipping a lot of empty calories and saving my limited attention for the good meaty stuff. You should, too.