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Competing for Attention

…as opposed to competing for accuracy.

That’s the state of media in general, and the financial media is no exception. (In fact, it could very well be the single worst offender.) This competition for attention is a reality whether we’re talking about books, blogs, TV, or newspapers.

Of course, it’s no surprise. A media company’s revenue is proportional to the amount of attention their publications receive. That’s, in large part, why we continue to see articles touting:

  • hot stocks,
  • hot fund managers, and
  • market timing strategies

…despite the fact that an overwhelming body of evidence shows that investors would be better off following a buy & hold strategy with a diversified portfolio of index funds.

As they say, it’s difficult to get a person to understand something if his livelihood depends on his not understanding it. (I’m embarrassed to say that I’m a perfect case study–I used to make a living selling actively managed funds.)

The Ugly Truth

What I (perhaps naively) found surprising recently is that many members of the financial media know full well that the strategies/investments they’re promoting are complete nonsense.

What am I talking about? I’m talking about a classic article that Rick Ferri recently shared from the April 26, 1999 issue of Fortune magazine: “Confessions of a Former Mutual Funds Reporter.” Here’s the introduction:

“Mutual funds reporters lead a secret investing life. By day we write “Six Funds to Buy NOW!” We seem to delight in dangerous sectors like technology. We appear fascinated with one-week returns. By night, however, we invest in sensible index funds.”

Yikes. I wonder how many readers (or viewers) have any idea.

When a reporter writes an article about a stock he owns, he’s required to disclose his ownership–reason being that reporters could otherwise write articles solely for the purpose of pumping up the price of stocks they already own.

Perhaps the opposite disclosure should be required as well: “I do not own this fund. Nor have I ever. Nor do I have plans to buy it at a later date.”

That might give investors a fighting chance at determining which sources to trust.

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Comments

  1. The point being made here is an important one.

    My only caveat is that I don’t believe that any of us are immune.

    Those who promote indexing oversell at times.

    And I oversell what I believe in at times too, of course.

    Rob

  2. I think more and more your principles are growing on my Mike. I don’t even bother to watch TV stations like CNBC anymore. On one hand, it’s because I realize that the information probably won’t help me to pick stocks, anyway. On the other hand, it’s because I don’t really believe the pundits and talking heads are legitimately providing helpful information to their viewers. It seems to me that we are all trying to participate in a system which thrives on our ignorance.

  3. Mike, I love this article.
    I can think of a couple of reasons that the index/passive approach to investing won’t ever be mainstream:
    1) The media’s job is to keep you coming back for more. And for some reason, passive investing isn’t “sexy” enough for the mainstream media. (Probably not enough testosterone involved in passive strategies to keep it interesting for them).
    2)If people actually did what works: buy and hold, stay diversified, and index – it would put most of the advertisers out of business.
    3) Most people want the “magic beans” of investing that are going to make them rich overnight, they don’t want to hear that it’s actually going to take a long time even though in their gut they probably know have a sense of the truth. And the media is going to give people what they think they want, even if it’s bad for them.

  4. Michelle, thanks for stopping by to comment.

    I think your point #3 is one that I often miss. People want to see/watch/read that kind of nonsense. It’s no fun to hear that successful investing takes decades of cutting costs, saving regularly, and mechanically rebalancing your portfolio.

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