A book review of a subject matter where I have my bias will not do justice without me putting out the story which led me to such a bias in the first place. So, before I review the book, here is some history
The influence of media in the development of trader / investors cannot be understated. When I entered the markets in 1996, we did not have CNBC but did have the pink papers that are available even now. My first dose of investing wisdom was through reading such columns and trying to execute on ideas presented.
My first major brush with losses was also due to the influence of one such paper which in its Monday Edition had come out with a article on how buying Dividend Yield stocks was the best way to bet in the markets and listed 10 stocks which had seemingly good fundamentals and were available at very good dividend yields (Yield being based on previous year’s dividend). Since I come with neither a MBA nor from a family who has experience in shares, I jumped headlong and bought every one of them. To make a long story short, that was the last time I saw my money and of course, many of those shares still lie in my drawer having been delisted years ago even before dematerialisation became compulsory.
My second brush and one that permanently led to me having a bias against reading pink sheets came in 2000 when a acquintance of mine who after accumulating a huge chunk of shares of a penny stock was able to post a article in a major newspaper on how the company was as good as gold with plans exceeding that of **** (name of the then favorite). Of course, once the article came out, the stock went up 20x before the crash of 2000 ensured that this along with other companies with dot come / Info sounding names bit the dust. Of course, well before this happened, the acquaintance of mine was able to bail out with a pretty hefty gains.
For some reason, I have never been a fan of Television (other than to watch Films 🙂 ) and in that aspect, CNBC was something that I have never become addicted to (other than watching it in the years before twitter for breaking news with respect to Dow / RBI decisions). A good friend of me once commented that he had on one fine day counted the number of stocks that are mentioned / discussed on a normal day in the channels and the count came to the high 90’s. With so many stocks being discussed, its just a matter of chance that some stocks that were discussed and many that have news flow along with it tend to do well in the immediate term giving rise to the thought of media being a good way to absorb information. Nothing can be further than the truth though.
Its with this bias that I set myself to read the latest book of Joshua Brown and Jeff Macke. What prompted me to write was the following quote by Joshua
Paying no attention to “the media” allows you the luxury of blissful ignorance, and if you plan to die young, we highly recommend it.
While I have no plans of dying young (or getting financially bankrupt), I have survived this jungle of a market for a pretty long time (as a full time trader / investor) without having to depend on the daily dose of media. In that sense, I believe that the statement over blows the importance of the Media as a medium of information for the retail investor.
Before the advent of social media, the small investor was at the mercy of the financial media for getting news on the companies / markets he had invested into. But today with information being the finger tip and crowd-sourcing of research becoming big, there is little excuse for anyone to depend on the media to get the information and analysis they are looking for. Of course, since both the authors are regulars on financial television, one could not have seem how the book could have come to a different conclusion.
Its in this context that I am reminded of this quote from the Oracle of Omaha in his recent Annual Report
“Forming macro opinions or listening to the macro or market predictions of others is a waste of time. Indeed, it is dangerous because it may blur your vision of the facts that are truly important. (When I hear TV commentators glibly opine on what the market will do next, I am reminded of Mickey Mantle’s scathing comment: “You don’t know how easy this game is until you get into that broadcasting booth.”)
To me, the greatest issue with television pundits is their uncanny ability to forecast the future. The more outrageous the forecast, the more the prime time they get to talk. Hence you have had Analysts commenting on how Nifty will go down to 4500 right when the markets were ready to take off higher or make a call to buy Infrastructure Funds / Stocks right at the time they peaked in 2007.
This is not limited to India only as the book provides ample evidence of how “Hedgehogs” tend to occupy the limelight as well as continue to attract followers and attention even after umpteen number of failures. The very fact that they are able to provide a convincing story as to why Dow may hit 4000 or that Gold shall touch 5000 a Ounce is enough to gather the TRP they clamour.
The book in itself can be divided into two parts. Half the chapters have been written by Joshua Brown who as draws upon history to tell stories of the past pundits and how they came unstuck. The other half of the chapters are of interviews by Jeff Macke who has interviewed a variety of persons connected with the financial media. In terms of pages though, Jeff Macke hogs more than 75% of it with the rest being occupied by Brown.
The biggest revelation of the interviews I gained was that even the biggest stars of TV actually watched very little TV themselves and in that sense, it just confirms my view that one need to not be hooked to television to get across to news and analysis. The interviews themselves are ok especially if you were to compare interviews Jack D. Schwager has had in his Market Profile series. There is just so little insight that can be gained here that its completely lost in the noise of the leading questions and answers that proliferate.
The best chapter I liked was the Chapter 15 aptly titled “All your investment rules contradict each other”. Other than that, this is a book that is once read and disposed off since there is not much to gain from a second or third reading.
I believe that most investors are better off sticking to index funds since evidence is plentiful about how very few investors actually are able to beat the Index in the long run. But then again, that is not a advise you shall hear on Television where the anchors want you to believe that you can be the next Warren Buffett or Rakesh Jhunjhunwala by buying the stocks that are recommended by their Star Analysts (and if you want more, you can always subscribe to the tips and newsletter they offer on their personal websites for a fee).
Watching television has made most of us experts in Cricket / Football (or any other sports you care to follow) and similar thought process gets developed by a investor who believes TV is the substitute for real analysis. Unfortunately the herd is seldom right and if your process of stock selection is dependent on the pontification of TV pundits, its just a matter of time before you shall see that while the analysts continue to be cheerful, your trading account is in tatters.