Perfection and Markets Don’t Mix
In a perfect world, economically or financially speaking, markets would behave in an entirely predictable fashion. Indeed that is the substance of Economics 101 – in given situations, essentially related to supply and demand, markets do indeed behave predictably. It’s a major strength of capitalism after all. But this assumes of course that all participants in the subject market are possessed of exactly the same information – and that they all act on that information in a rational way.
Hence Punditry – Old and New
In the real world, markets cannot be predicted with anything like the certainty that would allow buyers and sellers to optimally transact. Which is why we have pundits. In the past – meaning, in the period ‘BI’ (before the internet) – we knew where to find these people who were blessed with the gift of foresight, the market knowledge to exploit it, and a complete lack of shyness in doing so. They were in the financial media – the Financial Times, the Wall Street Journal, and the like – or they had their own newsletters which were sent through the post on subscription. It was quaint but it worked.
Now, we still have the financial press but they share cyberspace with thousands of emergent pundits whose fortune-telling attracts more or less attention – some on an ongoing basis, others only from time to time, perhaps for getting something dead right, or dead wrong. The newsletters still exist but in purely digital form in the years AW (age of the Web), and the line is totally blurred between the old-style pundits and today’s bloggers, who can include pretty much every man and his dog.
And there is a degree of symbiosis and mutual back-scratching going on which means that relationships are formed every which way and objectivity is best not presumed – though it may exist in fact. Case in point: FT Alphaville – the Financial Times’ blogsite – currently lists 89 titles on its blogroll. Exclude the apparently inhouse blogs, and you’re still faced with over 80 different sources of punditry.
Picking the Pundits – Throw of a Dice?
Assuming one neither has the time nor the inclination to wade through this huge mass of electronic prognostication, how does one decide who to run with? One could use a time-honoured method of closing one’s eyes and applying a forefinger to the screen – on FT Alphaville’s blogroll, for example – and go with whichever blog is thus selected.
Unfortunately, this technique may well lead to rogue results. It’s apparent that not all pundits, or their web/blogsites, are created equal. We alighted by this means – a purely random selection – on ‘Market Montage’. The usual appearance – feature items fading in and out at the top, teasers for latest blogs below, frequent blogs – up to 100 or so each month – and seemingly kept up to date.
Grammar and Spelling – Old-fashioned but Important
Where this particular site falls down is in the peripheral – but still important – content. For example, click on ‘About Us’ and you get exactly the following, no more nor less –
Mark Hanna is President and Owner of Hanna Capital, LLC, a registered investment advisory firm. Mark has been a follower of markets since the late 80s, with a focus on individual equities since the mid 90s. He has been a…
That’s it – after the ellipsis, nothing, leaving the interested reader wondering just what Mr Hanna has been. Only by the merest chance – curiosity as to how many pages of blog there are on this site and when it all started – did we click on the very first blog, way back at page 121, and there discover a completed version of the ‘About Us’ page. By this means, we learned that Mark Hanna has been a –
… well known commentator in the financial blogosphere for the past 5 years, following a career in corpoporate finance and accounting
Right. All well and good. And ‘corpoporate’ is spelt like that in the text. And the next bit goes like this –
As an avid reader, Market Montage is the personal blogging site for Mark to share his views on economics, markets, and the like.
Which is not grammatical – it’s Mark not the blogsite who (presumably) is the avid reader. Of course, you don’t have to be a Pulitzer Prize-winning writer or a grammarian to pick stocks, but mistakes matter. Or ought to, if you want to promote your stock-picking acumen. As does this particular blogger – he manages an investment fund. It’s called Paladin Long Short Fund and there’s a prominent advertisement for it on every page.
Is Impartiality Important in Punditry?
When you click on that ad, you first have to affirm that you’ve read this statement –
Note that by clicking on the links on this page you acknowledge that you are being sent to to [sic] an independent and unaffiliated website.
And that –
Market Montage and/or its principals are not endorsing or soliciting the purchase of the fund or funds found on the website you will visit when following this link.
It might seem like nit-picking but the statement seems scarcely credible, because when you do get to the investment fund website, you learn this –
Mark Hanna is the founder of Hanna Capital, the advisor to Paladin Long Short Mutual Fund.
And this –
Hanna Capital, LLC, established in 2009, serves exclusively as the investment advisor to the Paladin Long Short Mutual Fund.
So, Mr Hanna is Hanna Capital LLC and all Hanna Capital does is act as investment adviser to the Paladin fund. Can he/it plausibly assert that Paladin is ‘an independent and unaffiliated website’?
And actually, does it matter? Well it does if you’re holding yourself out as an independent and unaffiliated stock-picker for reward.
It’s Just a Blur
But this distinction – between pundit and seller – is blurred right across the financial commentary industry. Some of the best known forecasters are employees of or retained in an advisory capacity by prominent market participants. To take just one example – Willem Buiter, chief economist for Citi (C). Here’s how FT Alphaville bylined Mr Buiter’s latest forecast, on 26 July –
Citi’s iconoclastic chief economist Willem Buiter and team are seeing a very high likelihood of a Greek eurozone exit in the not-too-distant future, and a sovereign bailout likely for both Spain and Italy this year.
‘Iconoclastic’? Descriptive, according to Merriam-Webster, of a person who ‘attacks settled beliefs or institutions’. Not in this particular instance with, it seems, pretty much everyone in the punting business now pushing the ‘Grexit’ message. (And by the way, Mr Buiter is also routinely credited with concocting that particular portmanteau.)
But perhaps the difference is that what Mr Buiter says gets noticed much more than what some obscure self-employed blogger opines. If so, it can only be because Mr Buiter works for a major player in the international banking sector. That makes him at once both less likely to be objective and more likely to be well-informed. He also has a page on Wikipedia, whereas Mark Hanna doesn’t. And neither do most of the financial bloggers.
The Wikipedia Factor
The point here is that the more noise a pundit makes – or is made about him/her – the more investors are going to take notice and, probably, be influenced by the forecast, whatever it should be. And there are a number of prominent commentators – who mix observation and punditry – who continue to dine out on past successes. Of course, this is not to suggest that they’ve subsequently let their game slip but rather that what they now choose to say invariably gets talked up in the media/blogosphere coverage by a reminder of why we should pay attention.
Two related illustrations – economists Robert Shiller and Nouriel Roubini. Both are from academia – in the US – but both now have their own institutes, and Wikipedia pages. In any media or blog item covering their respective musings, you will invariably encounter a reference to the fact that each predicted, amongst other things, the collapse of the US housing bubble.
The fact that, as in Shiller’s case at least, the prediction preceded the event by something over four years – making it hardly useful investor information at the time made – is neither here nor there. What seemingly is important now is that anything in the nature of a forecast made by such an observer carries extra kudos because of that past hit.
The ‘Been There, Done That’ Factor
Then of course there are forecasters who are listened to because they’re really rich. The uncontested heavyweight champion of the world here must be Warren Buffett, who after all has made his billions – and billions more for investors in Berkshire Hathaway – by getting his stock picks right most of the time. And he’s definitely on Wikipedia.
Though, he’s not right all the time. In February this year the ‘oracle of Omaha’ conceded he’d been ‘dead wrong’ in predicting in his 2011 shareholders letter that the US housing market would recover by the beginning of the current year.
What Investors Want
Investors can’t – and for the most part probably don’t – expect pundits to be right all the time. They do almost certainly expect them to be well-informed, acting as a proxy for investors themselves if only they – the investors – had access to the information, and the time to consume it all, which they – the pundits – are represented or presumed to have at their disposal.
And therein lies the dilemma for investors. If one assumes that no pundit is so endowed all the time, how is one to know who is on any given occasion? When Mr Buiter puts it at 90 percent – more or less a certainty – that Greece will leave the euro by year-end, is he telling us what we would know had we his knowledge? Should we go long – or short – in Greek export stocks in consequence? We probably need a pundit for that.