June 3, 2015

Stock market experts on TV are too confident

We need more Jeff Spicolis in the investment business -- people who are unsure of themselves and can say: "I don't know!"

Yesterday, I came back from some research meetings and found the S&P 500 up by about 20 handles, the polar opposite of the previous day's 20-handle fall.

I tuned into the business shows for a market recap but was amused by how many self-assured market observers "knew" -- after the fact -- that Wednesday's reversal would occur.

I wish I were that smart. Although I did cover many of my shorts on Tuesday, I had no clue that the market would recover.

Frankly, as I've repeatedly written, the only certainty in investing is the lack of certainty. It's for that reason (and out of respect for my and my investors' capital) that I've been plus or minus "market neutral" for months now. There are simply too many possible adverse economic and market outcomes -- which makes, for me, an unattractive reward-vs.-risk equation.

I see this self-confidence of "after-the-fact" analysis all of the time in the business media, on Twitter, Facebook and elsewhere.

My advice has been constant -- avoid those who are self-confident of view and who provide ready explanations to daily market moves.

Why? Because 
1) they probably aren't managing significant amounts of money (and in some cases don't have any assets at risk at all), 
2) their observations are almost always "after the fact," 
3) they explain the turnaround on variables that are just plain dumb (often simply making stuff up), 
4) they're probably trying to sell you something instead of providing value-added investment input, and 
5) they never say "I don't know."

The investment world and the media that cover it demand endless opinions that most people have limited information on. I describe this as being 3-miles wide and 1-inch deep. Sometimes the respondents just make answers up. Other times the questions and answers are simply scripted in advance and the rapid-fire responses are mistaken for thoughtful and deep analysis. (Which they're not.)

My pet peeve is the singular question that's routinely asked of business TV's "talking heads" as they parade before the media at 3:45 p.m. and 6:00 p.m. every day. They're always asked the same inane question: "Why did the market do what it did today?" 

In a market that's without memory from day to day (and that often ends the session based on the last program standing), that's an impossible question to answer. It also underscores the simple-minded attitude of the questioner, who -- instead of asking probing questions -- asks lame, simplistic and standard ones.    
The market's wild and uncorrelated swings so far this year have elicited numerous self-confident responses about the causality between news and prices. They're irrelevant and inaccurate because this market has been trendless.

We do see rare expressions of truthfulness, but they're few and far between. The last one I can remember was from my friend Josh "Downtown" Brown of Ritholtz Wealth Management, who answered a question on CNBC's "Fast Money" earlier this year with the words: "I don't know."

I guarantee that you won't hear that very often from TV guests, as many believe they wouldn't seem smart enough if they were honest with us. Instead, most simply make up stuff. Knowing the likelihood of the question, they have their talking points all summed up before they appear. Many even underscore their reasons behind a market's daily move with such confidence that even I believe them at times.

The fact is that snark and made-up opinion far too often envelop the business media in place of facts and figures.

Equally infuriating is the confidence shown in delivery of said snark. Sometimes the reason for this is out of necessity, as media appearances are typically brief. Nevertheless, in a world characterized by an absence of certainty and an interrelated and a complicated market mosaic, too many TV guests attach self-confident reasons to randomness.

In summary, I would characterize a lot of the pabulum in the business media as instantaneous entertainment rather than rigorous analysis. 

VIA http://www.thestreet.com/story/13168013/2/kass-explains-whats-wrong-with-stock-market-tv-pundits.html