Investment prophets and profits

• abnormalreturns
• March 29th, 2010

Sometimes it takes a good old fashioned spat to remind you what really matters.  The Henry Blodget-Felix Salmon argument over the proper form (and function) financial journalism should take reminds us that there is a significant gap between what happens in the realm of financial journalism and its offshoot punditry and what happens in actual portfolios.*

Of more interest was a piece this weekend at Ultimi Barbarorum that takes a look this gap between financial journalism and actual market participants.  (We recommend you read it in its entirety.)  Baruch’s point being that the incentives for the media are very different from some one running money.  Member of the media need to “look smart” no matter the market outcome.  While noting the important role financial journalists play, Baruch notes:

But in the end journalists are explainers, commentators. They are dependent on market participants to provide them with things to write about. They review what others do. They work with the huge advantage of hindsight. And when it comes to giving advice about what what should be done, most media commentators are no better than the rest of us. Probably worse; they don’t get as much practice at it.

Even when market participants are in the media they have another handicap as well.  As we have discussed before they are likely “talking their book.”  That is they are discussing investments in which they already have some economic interest.  This makes their advice should be taken with a grain of salt.

The bottom is that you and you alone are responsible for your investments.  This includes any fiduciary you may hire to run your money as well.  This point is noted again by Baruch at Ultimi Barbarorum where he writes:

Much more than philosophy, investing should be a solitary activity. A group of people or colleagues you can check your ideas with is a good thing, but you must take responsibility for your investments yourself. You will receive conflicting advice, all of which will sound plausible but most of which is wrong.

For most individual investors he thinks that the hurdles to investment competence are too high and recommends that most people would be better off with a paid professional to handle their investments.  While not absolving of your responsibility to your portfolio it does have the beneficial side effect of freeing up some of your time to actually enjoy your life.

There is a broad range of information and commentary available in the econoblogosphere and mainstream media.  It ranges from the vague and unhelpful all the way to specific trade advice.  Some of it is informative and useful.  Some of it is downright dangerous.  The challenge for the investor is to take advantage of what is out there without being caught up in the noise and contradictory advice.

There is only so much we can control in our portfolios.  The markets are in a certain sense going to do what they are going to do.  What you can control is how you consume financial media and how you use it in managing your own portfolio.  Because you, and you alone, are ultimately responsible for its performance.

*See also this piece by Damien Hoffman on whether long form financial journalism is dying over at Wall St. Cheat Sheet.

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