Punditry is all about concise sound bites, so before diving into a full review, my one sentence review of Josh Brown and Jeff Macke’s new book Clash of the Financial Pundits is “a spoonful of sugar helps the medicine go down.” This is a book that sneaks great investing advice and wisdom into your brain by sugar-coating it with great stories, good writing, and several fascinating interviews.
Jeff Macke asks the question early on:
But with it being the case that people can’t beat the market over time, wouldn’t that make punditry a little bit of a racket? What do you think of financial media? You’ve got this constant reporting, this buy on the short term; what are they going to earn this quarter? Is it just a mugs game from top to bottom?
Punditry plays to our primal instincts. We love punditry because it’s entertaining but also because we foolishly think that financial experts will give us some edge with what they say on TV. What we need is long term, steady advice, but what we get are “hot tips.” As Jim Rogers says
I try to spread this message all the time, Jeff. It doesn’t work. Everybody wants a hot tip. Everybody wants to be rich this afternoon. You can sit there all day long and say, “The emperor has no clothes.” Nobody wants to hear it. They all want a hot tip.
I loved the discussion of pundit intelligence and of the negative forecasters. Smarter people do not necessarily make smarter predictions, even though it seems like they should. And, for some reason, being negative makes a pundit sound smarter even though markets have delivered mostly positive results over the long term. Henry Blodget points out, “For some reason, being negative always sounds smarter. I don’t know what it is about people, but I noticed this when I was an analyst as well. It’s easier to sound smart as a negative pundit.” Jeff Macke asks:
Is there a deadline on this prediction for the imminent apocalypse that’s going to come? Because you need a starting point, right? If we get a 25 percent correction now, that’s not going to go anywhere near taking back all the gains we’ve seen. But most pundits refuse to say, “I was wrong.” No one is ever wrong. They’re “early.” Sometimes really, really early.
Brown and Macke continually point out that the same emotions that get us in trouble in the markets—greed and fear—are the most reliable ingredients to produce a hit piece of punditry. The main lesson I took from this book was that financial punditry can be great entertainment. But just like you shouldn’t go to Vegas to get rich, you shouldn’t make investing decisions based on sound bites. Take punditry for what it is, and you’ll be entertained and your portfolio will be no worse for wear. But if you use the “expert” advice and forecasts that you hear on TV, you are in some serious trouble.
The interviews were great, but my favorites were Altucher (“The only way they fill up the space between commercials is by having either extreme fear or extreme greed”) and Ritholtz (“television is halfway between ESPN 4 and the weather channel . . .”).
I’ve just scratched the surface: there are tons of hidden gems throughout, which I won’t spoil here. James Altucher says, “What the audience thinks is that they want to learn something. But what they don’t realize is that they want the ice cream. It’s just like people in general. People think they want to eat healthy. Nobody wants to eat unhealthily. But at the end of the day people eat ice cream all day.” Ice cream is of course bad for you, but it’s enjoyable. The trick this book pulls on the reader is that it is like ice cream that is somehow good for you. I highly recommend it.