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More than a penny for their thoughts

New book examines influence of financial pundits

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They may only be human beings, but sometimes we forget that fact.

This is one of the main messages behind a new book about financial pundits.

Quick facts:

Clash of the Financial Pundits: How the media influences your financial decisions for better or worse

By Joshua M. Brown and Jeff Macke

Publisher: McGraw-Hill

256 pages

 

After all, the authors of Clash of the Financial Pundits: How the Media Influences Your Investment Decisions for Better or Worse work in the industry themselves.

They're not just former investment professionals who have worked on Wall Street and continue to help manage money.

Josh Brown and Jeff Macke are also noted pundits and, in fact, know very well many of the financial media celebrities interviewed in the book -- from Jim Cramer to Ben Stein to Barry Ritholtz.

And while the big motivation behind writing the book was to help readers understand the level of influence media personalities can have on our financial decisions, they also wanted to humanize these individuals, says Macke, a former original cast member of CNBC's Fast Money, now with Yahoo Finance.

"More to the point, they are people that Josh and I have come to respect over the years and we wanted to get some behind-the-scenes insights."

Most of the book's chapters focus on individual pundits using a "question-and-answer" format, with Macke conducting the interviews.

And a good portion of the discussion revolves around how financial media -- specifically television programs -- make for an imperfect beast.

"The idea was simply to give some investors a little bit of context when they consume financial media so they can minimize the damage," Macke says.

"We wanted to help them realize that it's an entertainment product to be consumed by masses as opposed to actual financial advice, which I think is the biggest mistake people often make."

Among all the pundits interviewed, Jim Cramer is probably the most recognizable name, renowned for his manic, over-the-top style on his CNBC program Mad Money where he discusses in colourful language the merits of various stocks.

Yet Cramer is almost equally well-known for his appearance on Jon Stewart's The Daily Show -- a U.S.-based political comedy program -- where he was grilled over his on-air recommendation that Bear Stearns was a good buy in the months leading up to the 2008 meltdown.

(The legendary investment bank was eventually bought up by competitors, after a precipitous fall in its share value, to prevent it from collapsing -- the result of having too much sub-prime mortgage exposure.)

Macke says while Cramer did indeed make a very bad call, the fact is all financial professionals make them at some point.

"That interview (on The Daily Show) was conducted the very week the stock market made a bottom, and basically he paid for the sins of financial media as a whole," he says.

"Is it fair to hold him up as an example on Jon Stewart? Maybe. But does it embody his life's work? Not even kind of."

Macke argues Cramer is a pioneer of financial TV. When his show first aired in the 1990s, Macke was a hedge-fund manager and well aware of the "chasm" between what average people knew about investing and what the industry knew.

"It was the Pacific Ocean of information spreads because if you were a professional, you were paying $5,000 a month for Bloomberg terminals and that was just to get analysts' reports and get earnings expectations -- meat-and-potatoes stuff that's available everywhere online now," he says.

"So, Jim was the first one to drop the curtain, to show people what goes on at Wall Street firms."

Of course, Cramer is loud, brash and seemingly a little crazy on TV, but that's precisely because it is TV, Macke adds. All pundits must serve up their knowledge with a generous slathering of pizzazz to keep viewers entertained.

"People will turn the channel if you bore them," Macke says. "You're trying to keep an attention span in a world where there is no collective attention span at all."

The problems arise in the manner viewers consume media. A healthy dose of scepticism is required. But instead people cherry-pick ideas.

"There's a cognitive bias to collect data points that support your view of the world," he says. "So you might as well be Charlie Brown's teacher just making "wah, wah" noises when you issue caveats about what you're saying to viewers."

Moreover, most people generally don't want to listen to negative investment news when times are good. In fact, they don't like viewing business news all that much when markets are booming. But they always come crawling back when there's blood in the streets.

"Oh man, if it bleeds, it leads. Human misery is absolute ratings magic, which is kind of counterintuitive until you think about how it speaks to the psychology of the masses when it comes to their money," he says.

"When the market is going higher, as it has been for the last two or three years, that's what leads to financial news being at record lows."

Perhaps that's why -- even more than the run up to 2008 to the crash -- pundits spend plenty of airtime bantering about another impending crash. They're ramping up the fear to keep viewers riveted -- to everyone's detriment, Macke says.

"This is often just the worst of what financial media has to offer," Macke says. "It's taking otherwise thoughtful, smart people and reducing them to a 'is there or isn't there a crash coming' argument for five minutes."

It's not that discussing market risk isn't a valid discussion, but what viewers should take from the debate is not that a crash of epic proportions is imminent.

Instead, they should learn to appreciate the complexity of issues, and good TV should help enhance that understanding.

"If you're putting together a show well, you find someone to argue with not just because it makes for good TV, but it also helps form better ideas," he says. "You put those ideas in that kiln, heat 'em up and beat them into shape so you come up with some sort of thesis."

But this is hard to do if viewers believe the "experts" they're watching on TV are infallible.

Macke hopes the book helps people understand that, particularly learning from the examples of those he and Brown have interviewed -- all of whom have taken their knocks.

"You never want to buy stock just because some guy says so, but the people you want to take seriously beyond just the entertainment factor are folks that you've seen crash and burn, and then modify their thinking as a result," Macke says.

"One of the commonalities of all these people is they've all overcome that adversity and stood back up in the public light -- and those are the people you should listen to."

giganticsmile@gmail.com

Republished from the Winnipeg Free Press print edition August 9, 2014 B13

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