The financial media and investment advice

Josh Brown is a financial news blogger at TheReformedBroker.com, and he is also the CEO of Ritholtz Capital Management.

TheReformedBroker.com is one of the most widely-followed financial blogs in the world, and Brown has been named the top financial person to follow on Twitter by the Wall Street Journal, Barron’s and Time Magazine. He is also a daily on-air contributor to CNBC.

Brown is also the author of “Backstage Wall Street” from McGraw-Hill (2012) and co-author with Jeff Macke of the newly released book “Clash of the Financial Pundits,” which was also published by McGraw-Hill. The latest book takes a look at how the financial media influences — both good and bad — consumer’s investment decisions.

Brown spoke by email with Talking Biz News about his latest book and how the financial media affects how consumers invest. What follows is an edited transcript.

How did you get the idea for this book?

I was talking with my friend Jeff Macke of “Fast Money”/Yahoo Finance renown, and it had occurred to us that no one had ever done anything like it. That there was a human side to the financial commentary-industrial complex that would make for a really interesting story. We spoke to some publishers and found a lot of interest in the topic, so we just went for it.

How did you do your research?

I began by making a list of the most well-known market commentary and commentators of all time and then read everything I could find about them and their stories. Simultaneously, we made a wish list of famous market commentators of the modern era and set about asking them to be interviewed for the book. We were thrilled when they pretty much all said yes. Many of them had never had a chance to tell their side of the major events and moments they’d been involved with.

You are a blogger and a money manager. How did it help to have one foot in both areas when writing this book?

Absolutely. As someone who both participates in and consumes financial media, I had a pretty well developed sense of the good and bad of it all. I also had some pretty strong opinions about the genre, which I’m not shy about examining in the book.

What are the issues with financial media providing investment advice?

Often times, especially on television, nuance either gets lost or is never present to begin with — the format simply doesn’t allow for it. There is also a gigantic mismatch between professionals talking about their opinions and the viewing audience. It’s highly unlikely that pro traders and money managers can be emulated by civilian investors in actual practice. There are also huge aspects of investing that cannot be accurately depicted in the media.

For example, when a pundit mentions a stock that he or she likes, there is rarely any discussion about position sizing, intended time frames, or what would indicate to the investor that a thesis has been proven wrong. Therefore, taking advice directly from someone’s opinions in an article or TV segment amounts to trying to follow a recipe with just half the ingredients and none of the necessary measurements.

What financial media do a good job, and why?

I think Consuelo Mack‘s show online, “WealthTrack,” is the best forum in existence for providing long-form, in-depth conversation with the world’s best investors. I think Twitter and blogs are fantastic for real-time dissemination of data and instant analysis. The Wall Street Journal and Barron’s do great investing content, and Morningstar is really good at portfolio construction stories. The ETF sites are great at providing an ongoing picture of where the money is flowing and how people are gaining exposure to specific themes.

I think Tom Keene‘s radio show in the best in the business. And, selfishly, I think my show — CNBC’s “Halftime Report” — is consistently the most exciting and up-to-the-minute one hour of television on any of the three networks for active traders. I know for a fact that some of the biggest money managers and hedge fund guys in the world are watching it and I love being a part of its daily creation, on screen and behind the scenes.

What financial media do a bad job, and why?

I think there’s way too much media being created in general, online and off. This is probably where the problem starts. In order to be heard or clicked, it gets increasingly more shrill. Guests are sometimes deliberately booked because of how polarizing and outrageous their views are. There’s also a lot of filler, which is the nature of the beast unfortunately. The same negatives apply for websites and publications, only there’s even more noise than ever now owing to the zero-barrier to entry.

I think sometimes clickability outweighs responsible journalism – but that’s far from a minority opinion. People are hip to the game now, which is why curation by people like myself, Tadas Viskanta of Abnormal Returns and others has taken center stage. We’ve become part filter/part Bullshit Police for out followers, which has disintermediated the traditional homepage structure of many sites.

Is there a magic bullet in the media when it comes to providing advice?

Because the viewing / reading audience is made up of so many different people with different financial needs and circumstances, it’s hard to say that there’s any such thing as a silver bullet for advice. Which means that people need to consider whether or not what they’re hearing — even if interesting — has any practical application for their own purposes. Often, it does not.

Some would say that the financial media shouldn’t give advice; they’re journalists not financial experts. What do you think?

I agree but this does not mean the financial media – and journalists specifically – should go unheeded. Take a guy like Jason Zweig for example. He has more investing knowledge in his pinky than many pros have in their whole bodies. He’s been watching the carnival for two decades, has read every applicable book, white paper and research report on investing and behavioral psychology that’s crossed his path. Do you want to disregard the incredible wisdom and common sense he doles out at the Journal each week because he doesn’t have a Series 7? I don’t think so. I’ve learned a lot about investing from the columnists at Barron’s as well over the last sixteen years, it’s the only subscription I would never give up.

In Dean Starkman‘s book, we learn about the difference between accountability journalism and access journalism — the former being about writing the hard stories that matter and the latter being what 80% of the rest of what we read is made up of. I would argue that financial journalism at its best (and its rarest these days) does the types of stories that may not be immediately “actionable” for investors, but can be of much more importance for our understanding of what’s really going on.

Why should people listen to or read financial media for their financial advice?

In my view, people should not be relying on the financial media for advice at all. I think the financial media works better as a jumping off point for our own research, as inspiration, and as a fact or data-distribution mechanism. We should count on the media to tell us what is happening and what people think about it, we should then take the next step on our own and decide — like adults — what this information ought to mean for us personally.

What was the most surprising facts that you discovered when writing this book?

I think the biggest surprise for me when going back through financial history is that nothing — literally nothing — has changed since the dawn of investing. One of the opening chapters of the book is about the “first media-blown bubble” which occurred when the English government began exchanging debt for equity in the new South Seas Co. In order to move shares of the joint-stock company and make it palatable for investors, they recruited pundits from the literary world like Daniel Defoe (Robinson Crusoe) and Jonathan Swift (Gulliver’s Travels) to do PR and positive write-ups in the newspapers in London and beyond.

If this sounds familiar, it should. Hype and brokerage have always gone hand in hand. This is one example of many we’ve seen through the years in which the past served as prologue in the financial media.

How did you get the idea for this book?

I was talking with my friend Jeff Macke of Fast Money / Yahoo Finance renown, and it had occurred to us that no one had ever done anything like it. That there was a human side to the financial commentary-industrial complex that would make for a really interesting story. We spoke to some publishers and found a lot of interest in the topic, so we just went for it.

How did you do your research?

I began by making a list of the most well-known market commentary and commentators of all time and then read everything I could find about them and their stories. Simultaneously, we made a wish list of famous market commentators of the modern era and set about asking them to be interviewed for the book. We were thrilled when they pretty much all said yes. Many of them had never had a chance to tell their side of the major events and moments they’d been involved with.

You are a blogger and a money manager. How did it help to have one foot in both areas when writing this book?

Absolutely. As someone who both participates in and consumes financial media, I had a pretty well developed sense of the good and bad of it all. I also had some pretty strong opinions about the genre, which I’m not shy about examining in the book.

What are the issues with financial media providing investment advice?

Often times, especially on television, nuance either gets lost or is never present to begin with – the format simply doesn’t allow for it. There is also a gigantic mismatch between professionals talking about their opinions and the viewing audience. It’s highly unlikely that pro traders and money managers can be emulated by civilian investors in actual practice. There are also huge aspects of investing that cannot be accurately depicted in the media. For example, when a pundit mentions a stock that he or she likes, there is rarely any discussion about position sizing, intended time frames, or what would indicate to the investor that a thesis has been proven wrong. Therefore, taking advice directly from someone’s opinions in an article or TV segment amounts to trying to follow a recipe with just half the ingredients and none of the necessary measurements.

What financial media do a good job, and why? 

I think Consuelo Mack‘s show online, WealthTrack, is the best forum in existence for providing long-form, in-depth conversation with the world’s best investors. I think Twitter and blogs are fantastic for real-time dissemination of data and instant analysis. The Wall Street Journal and Barron’s do great investing content and Morningstar is really good at portfolio construction stories. The ETF sites are great at providing an ongoing picture of where the money is flowing and how people are gaining exposure to specific themes.

I think Tom Keene‘s radio show in the best in the business. And, selfishly, I think my show – CNBC’s Halftime Report – is consistently the most exciting and up-to-the-minute one hour of television on any of the three networks for active traders – I know for a fact that some of the biggest money managers and hedge fund guys in the world are watching it and I love being a part of its daily creation, on screen and behind the scenes.

What financial media do a bad job, and why?

I think there’s way too much media being created in general, online and off. This is probably where the problem starts. In order to be heard or clicked, it gets increasingly more shrill. Guests are sometimes deliberately booked because of how polarizing and outrageous their views are. There’s also a lot of filler, which is the nature of the beast unfortunately. The same negatives apply for websites and publications, only there’s even more noise than ever now owing to the zero-barrier to entry. I think sometimes clickability outweighs responsible journalism – but that’s far from a minority opinion. People are hip to the game now, which is why curation by people like myself, Tadas Viskanta (Abnormal Returns) and others has taken center stage. We’ve become part filter / part Bullshit Police for out followers, which has disintermediated the traditional homepage structure of many sites.

Is there a magic bullet in the media when it comes to providing advice?

Because the viewing / reading audience is made up of so many different people with different financial needs and circumstances, it’s hard to say that there’s any such thing as a silver bullet for advice. Which means that people need to consider whether or not what they’re hearing – even if interesting – has any practical application for their own purposes. Often, it does not.

Some would say that the financial media shouldn’t give advice; they’re journalists not financial experts. What do you think?

I agree but this does not mean the financial media – and journalists specifically – should go unheeded. Take a guy like Jason Zweig for example – he has more investing knowledge in his pinky than many pros have in their whole bodies. He’s been watching the carnival for two decades, has read every applicable book, white paper and research report on investing and behavioral psychology that’s crossed his path. Do you want to disregard the incredible wisdom and common sense he doles out at the Journal each week because he doesn’t have a Series 7? I don’t think so. I’ve learned a lot about investing from the columnists at Barron’s as well over the last sixteen years, it’s the only subscription I would never give up.

In Dean Starkman‘s book, we learn about the difference between accountability journalism and access journalism – the former being about writing the hard stories that matter and the latter being what 80% of the rest of what we read is made up of. I would argue that financial journalism at its best (and its rarest these days) does the types of stories that may not be immediately “actionable” for investors, but can be of much more importance for our understanding of what’s really going on.

Why should people listen to or read financial media for their financial advice?

In my view, people should not be relying on the financial media for advice at all. I think the financial media works better as a jumping off point for our own research, as inspiration, and as a fact or data-distribution mechanism. We should count on the media to tell us what is happening and what people think about it, we should then take the next step on our own and decide – like adults – what this information ought to mean for us personally.

What was the most surprising facts that you discovered when writing this book?

I think the biggest surprise for me when going back through financial history is that nothing – literally nothing – has changed since the dawn of investing. One of the opening chapters of the book is about the “first media-blown bubble” which occurred when the English government began exchanging debt for equity in the new South Seas Company. In order to move shares of the joint-stock company and make it palatable for investors, they recruited pundits from the literary world like Daniel Defoe (Robinson Crusoe) and Jonathan Swift (Gulliver’s Travels) to do PR and positive writeups in the newspapers in London and beyond. If this sounds familiar, it should. Hype and brokerage have always gone hand in hand. This is one example of many we’ve seen through the years in which the past served as prologue in the financial media.