Jeff Macke is the host of Breakout on Yahoo Finance. Prior to that he was an original cast member of CNBC’s “Fast Money,” founder of Macke Asset Management and a hedge fund manager. His recently released book, “Clash of the Financial Pundits,” offers a no-bull breakdown of the endless financial advice coming at us through every screen we own.
THE SINGLE MOST IMPORTANT TRAIT
Who is worth listening to?
The open space and cost-free economics of web publishing have opened up the floodgates of opinion in ways the more expensive-to-create media of television, newspapers, and magazines never could have. The upside of this is that, like on American Idol, true stars can be discovered through new channels that are unpoliced by the establishment media apparatus. The downside is that you’ve got to wade through a sea of untalented amateurs to find your Kelly Clarkson.
The meritocracy of the modern media eventually pushes the cream to the top, but this process takes time. And while the cauldron boils away, all sorts of noxious odors and imperfections in the mix come periodically bubbling to the surface.
Most people think that experience is the single most important thing that a pundit can bring to the table. There is some validity to this. What good is an opinion if it hasn’t been seasoned a bit, battle-hardened and galvanized in the crucible of real life and real markets? Can any of us truly profess to have fully formed, postadolescent views on the topic of investing and business with only a few years’ worth of experience? Without at least a decade of professional money management, securities analysis, trading, asset allocation, banking, investigative journalism, paid economics work, or some combination of these, one’s unqualified opinions are probably best kept away from the public sphere. This is for everyone’s good, both that of the speakers (lest they embarrass themselves) and that of the intended audience members (lest they lose all their money listening to the wrong pundit).
And while a lot of people have had experience, that doesn’t automatically make their opinions worthwhile. Because sometimes with experience comes arrogance, haughtiness, or rigidity. “This is the way we always used to do it so this is the way we shall do it forevermore.” Unfortunately, while the inherent fear and greed dynamics in investing never change, markets, companies, and technologies do. Trends persist and then evaporate; institutions and ideas rise and fall. Not every guy or gal with a smart opinion today will be relevant for whatever is to come.
Intelligence is important too, but not nearly as important as one would think. Even the smartest pundits in print and on air are almost always wrong, despite how well they present themselves. In fact, this is one of the hardest things about interpreting what you hear in the media for your investment purposes—“smart” does not equal “correct,” and it never has. This is not to say that we should hope for dummies to come out and share their thoughts, but once a certain level of intelligence is reached, it will avail them not at all in the arena of market commentary. They’re all smart people to have made it that far.
And as for honesty, sure, bring it on. But this is a virtue to be appreciated in the real world; it will not change a fallacious opinion into a meaningful one if the speaker of said opinion is unaware of his error.
No, a worthwhile market observer’s or commentator’s most important trait is not experience, or intelligence, or even honesty. Rather, it is humility: a willingness—an expectation—that future events can and will deviate from even the most rigorous thesis, and an acceptance that the markets exist to make fools out of even the best of us. Humility is perhaps the most important trait, and, concurrently, it is the most lacking characteristic among the financial commentariat.
Cliff Asness, the founder of hedge fund AQR, once said, “Seriously, anyone, quant or not, with a shred of intellectual honesty recognizes that there is some chance their historical success is just luck.” If only more of us would say this aloud and live as though it were an elemental truth.
The more predictions one makes, the more opportunities there are to be incorrect. The disingenuous pundit conveniently forgets (or wills others to forget) this statistical reality when he beats his chest in the afterglow of a winning call. But over time, this sort of duplicity becomes apparent to the public, and a backlash is the unavoidable result. The line between pundit and punch line has grown impossibly thin in the digital age, as one’s previous opinions are all just a click away.
By displaying humility, the market seer cushions his or her fall from grace when the inevitable occurs. “Kid, you’re on a roll,” Lou Mannheim tells the young hotshot Bud Fox in Wall Street. “Enjoy it while it lasts because it never does.”
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