At the Markel’s shareholder meeting in Omaha in June, someone from the audience posed this question to the company management: “I met a very large international money manager last night for dinner and he warned me that now is not the time to invest in US stocks. What do you think of his advice?”
Tom Gayner’s answer—true to his long-term investing form was this: We invest for the long-term. Our stock has dropped many times before but it always recovers and reaches even greater heights.
That question got me thinking: Who is this money manager? How good were his past predictions? Why would he give free advice? To make a name for himself or ruffle some feathers. May be, he’s short on stocks already, or perhaps just bluster. If he’s so convinced about the market’s next move, why he’s telling people? Wouldn’t he be better off to keep it to himself and make a killing in the stock market?
If I heed his advice and stop investing, how’d I know when to resume investing? Look for another anonymous opinion?
In other words, is there any actionable data in this gratuitous advice? Nope.
In this case, it was an anonymous advice. This is similar to what sometimes the media ascribes to smart money opinions. Even when the source is not anonymous—and often it is not—it’s still not worth my time to pay attention to it. I don’t know their records. I don’t know their motivation.
Smart money? This is one of my pet peeves—when media attributes some action or advice to smart money. But really, there is no such thing as smart money. All money is dumb. There are some money managers who are smart. And yet I’d need to carefully identify them since there are plenty who aren’t. Most smart managers don’t express opinion on the near term market direction—six months or one year ahead. (Or they don’t publish them, if they have any.) On occasions, they might comment on long-term market trends.
Consider the case of Warren Buffett, for instance. He almost never comments on market directions—his common refrain being he doesn’t have a clue what the market will do next. And yet, every once in a while, when he sees a long-term developing trend, he’d comment on how the markets would do next.
In July 1999, in a public speech, Buffett predicted subpar market performance over the next 17 years. And then in October 2008, in a newspaper op-ed piece, he suggested that the market (and the US economy) would do well in the subsequent decade. He turned out to be right, on both counts.
And yet those were just two market predictions he made in over a decade.
Best advice for investors like us is to take a step back, decide how much of savings we’d like to invest in stocks and over how long. And then just implement our plan. Ignore what the media tells us about the market direction. Long-term investing is not affected by the near-term market direction.
On the other hand, I invest in individual companies today. It makes sense that I read business news but just ignore any discussions or viewpoints about where the stock market might be heading next. I just focus on any news relevant to the businesses that I am interested in.
Here is a headline from today’s CNBC site (July 22):
The first paragraph of the article reads like this: “Danger is lurking in the stock market: A monster sell-off could be around the corner if the Federal Reserve doesn’t deliver the rate cut the market expects next week.”
This is nothing but click-and-bait at its worst. The article went on to quote a JP Morgan analyst who worries about the lack of liquidity in the market. The writer uses ominous phrases to generate attention, such as monster selloffs, violent declines, danger lurking, and imminent risk. Words that may cause concern in people’s minds and tend to keep their attentions.
As a reader, this information is not actionable for me. I don’t know who this analyst is and in what context he’s expressing his concerns. (The entire article only quoted one sentence from this analyst’s memo.) There’s also no mention of possible remedies for the situation. Either the JP Morgan analyst didn’t find any, or perhaps the article writer failed to include it.
So, in a nutshell, no useful information. Why should I even bother reading it?
In contrast, here is another article published by CNBC the same day:
It is about Starbucks investing in a startup, licensing its mobile payment technology to it, and enabling its international licensees to accept mobile payments. I am a long-time shareholder of Starbucks—I previously wrote about my Starbucks investment in this blog post (When stocks turn into perpetual bonds). This article has meaningful information for me. I read it with interest.
Financial Media frequently indulges in speculations on market directions. It’s in their DNA. It’s also a good way to hook unsuspecting readers. People are fascinated with predictions—and especially the dire kind.
For the same reason, the media loves so-called market experts who make bold projections. The bigger the name, the bigger the splash. Of course, it’s not just the media—some industry experts are eager to make a splash themselves. In a blog post in February, I wrote about Bill Gross—the well-known bond manager—who predicted a sobering new normal for the US economy. In another post last year, I wrote about two opinion pieces published in the aftermath of the 2008-2009 Great Recession. Each predicted dire consequences for stock market investors.
My main issue with expert opinions is that there is no accountability with these. The media doesn’t track or publish how good someone’s past predictions has been. Without having this previous history—and especially for people other than a few well-known names in the industry—we don’t have a way to assess the quality of advice. After all, CNBC might never again publish another opinion from the JP Morgan analyst it quoted in the article.