Financial Blogs and Choosing Your Source: Credentialism?

At "A Dash" we are exploring the topic of financial blogging.  Last month we had a two-part series (here and here) stimulated by an "outside" comment on blogs versus regular journalistic sources.  Readers should check out the full argument, but our basic position is that many blogs and journalists alike overstep their expertise.  The writers lack the necessary skills to evaluate the conclusions they reach, misleading many well-intentioned investors.  We suggested that bloggers, while perhaps remaining anonymous, should reveal their credentials.

New Perspectives

There have been several interesting developments in the last month, as follows:

  1. An intelligent and skillful young blogger, Rob Pitingolo, is providing interesting comments on many subjects at Greenback Consulting.  He wrote me to object.  His interpretation (somewhat oversimplified for this report) was that we thought that he should not be allowed to blog, or that readers should ignore him.
  2. One of the Three Amigos called me to bemoan "resume fraud."  This Amigo, holding various advanced degrees from institutions like The University of Chicago and Oxford, suggested that real knowledge no longer mattered.  Anyone could claim to be an expert in the Internet world and many others claimed degrees they had not earned.  Employers do not check, and if one is not a potential employer it is almost impossible to check.
  3. Barry Ritholtz, as always a leading voice on financial blogging, recently highlighted the monetary incentives involved in creating a high-traffic blog and thoughtfully describes the battle for fair payment.
  4. Art Cashin, in his always delightful daily market commentary, Cashin’s Comments [UBS account required], recently recalled the life of Ferdinand Waldo De Mara, The Great Impostor.  Readers who never read the book or saw the old Tony Curtis movie would enjoy checking it out.   Art wrote as follows:

"It was during the toughest days of the Korean War (er…make that "Police Action").  In the choppiest of seas, the young surgeon was called upon to remove a bullet from a soldier’s heart. Shortly after that, he saved a man with severe wounds and collapsed lungs. The medical work was so amazingly successful that newspapers and magazines ran special features on the young wonder surgeon.

Several folks who bought the magazines noticed the picture layout and the coincidence that the guy in the photograph had the same name as a doctor they knew…Dr. Joseph C. Cyr of Vancouver. They sent copies of the photos to Dr. Cyr. He noticed that the hero not only had his name…he had also attended the same schools, in the same years and got the same grades as Dr. Cyr of Vancouver. He called the Canadian Navy to question the coincidence.

That brings us to this day (+1) in 1951. The Navy had discovered that the guy who performed those delicate operations on a pitching vessel in primitive conditions was not Dr. Cyr. In fact, he was not a doctor at all. He was a U.S. citizen named Ferdinand Waldo De Mara. The Navy was ready to punish to the max…but De Mara’s fellow officers, the crew and the men he had saved testified he was the most competent, dedicated and sincere man they had ever served with.   Perversely, the Navy inquiry also produced high praise for De Mara in the roles he had served in before he impersonated Dr. Cyr and joined the Navy. He was praised as a superior in a Trappist Monastery, a professor in three different colleges (in different subjects, no less), a jailbird (desertion from previous military service) and, perversely, later as a prison warden.  In all of the above positions and a dozen more (except jailbird), De Mara was an impostor. He had used different names and falsified various diplomas and accreditations he’d never won."

Our Conclusions

Financial blogging is a tremendous resource, providing both more information and diversity of interpretation.  This is a wonderful development for both investors and traders.  In general, more is better.

Readers have a right to know about the source of information.  The fact that someone writes a popular blog or is a columnist for a major publication tells only part of the story.   In some cases it is nearly impossible to determine the educational background of featured writers.

Why does this matter?  The basic answer is that one does not know the value of training  and education without having that experience.  Those who disparage several years of Ivy League education in economics without personal experience simply do not understand.  While leading professionals disagree about results, there are many topics where all agree.  There is also a strong methodology developed over centuries of work.  While we featured De Mara, he was obviously an unusual case.  Does a leading blogger with basically no credentials deserve our attention — a smart guy without training? 

At "A Dash" we try to find the best information from every source.  Doing so requires understanding the strengths and weaknesses alike.  Unfortunately, many of those writing are willing to stray far beyond what they really understand, while disparaging those who look deeper and with more skill.

Barry Ritholtz is pointing us in the right direction for understanding the issue, but the conclusion is still in doubt.  What will happen when hundreds of thousands of new investors switch from mainstream sources to blogs?  Where will they turn?  How will they determine the best sources?

The right blog for a trader may not be the right one for a long-term investor.  Those who have the skill to evaluate information should make different choices from those who are befuddled by disparate arguments.

There are more questions than answers on this vital question, so reader comment is especially welcome.

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  • Mike C October 10, 2007  

    “There are more questions than answers on this vital question, so reader comment is especially welcome.”
    I’m not sure I have any definitive answers. I’m not really sure what the question is? 🙂
    FWIW, I have a MBA from a top 20 business school, have passed the CFA Level 1 exam, and worked as an analyst for investment firms. However, I would say most of my investing “expertise” is a result of self-study and experience.
    Truth be told, what I learned from obtaining my MBA plays little role in my day-to-day information processing and decision making. Most of that is based on an absolute TON of reading of the classics (Graham, Lynch, Fisher, etc), a thorough studying of market history, and 12 years of experience in the markets as to what works and does not work when measured over a number of years.
    I will say my most valuable MBA courses were a course in critical thinking and a course in behavioral finance. My own view is many people have poor thinking/reasoning skills and are totally dominated by their bias, emotions, and faulty reasoning, especially things like confirmation bias (which you point out) and also recency bias (overweighting the most recent information). To me, having solid logical, rational thinking is the key to evaluating valuable blogs from those just spouting meaningless noise.
    With regard to experts versus non-experts, I think this is just very complex and full of uncertainties. You raise several good points and questions about bloggers who lack credentials or are not experts.
    Having said that, without naming names, you yourself provided a link in a positive context to a blogger who I am not really sure what his credentials and expertise are that relate to investing and the financial markets? I’m not sure if he has any degrees or formal training in business, finance, economics, or investments at all, yet he is being put up as a potential authority and must read.
    In contrast, I know of an investment manager with a PhD in economics from a top business school being questioned by bloggers who may not have any credentials or expertise.
    At the same time, I know of a RIA who is entirely self-taught (BS in engineering) and modeled his investment approach after a famous investment manager. He has done 20% CAGR over the past 12 years. I wouldn’t have a single doubt about his skill-set or “expertise” despite no formal training in finance, investing, economics.
    This question of credentials and “expertise” is a difficult one with no easy answers. In terms of bloggers and their readers, I think “let the buyer beware” applies. I really believe the onus is on the reader to develop their critical reasoning skills and turn off the emotional part of their brains when reading blogs.
    You mention confirmation bias alot, but I think recency bias is another dangerous one, perhaps even more so. More and more I am seeing a common theme that someone is “smart” because they have been right for the past 3 months, 6 months, 1 year, and someone is “dumb” because they have been wrong for 3 months, 6 months, 1 year. Very often, what is “smart” and “right” in the context of the previous 3 months turns out very wrong over multiple years. Alot of analysis has to be interpreted and applied in the context of the correct time frame.

  • David Merkel October 11, 2007  

    I don’t know… I really don’t. Expertise is complex, and I have known street smart people who beat the experts in various business/investing tasks. That doesn’t mean that a “street smart” person would make a good blogger, because the ability to motivate the topic, break it down, and write is critical.
    I’m a generalist, as you know, missing my Ph.D (it’s a long story) in economics, but I often take on topics that are multidisciplinary. That often forces me to be at the edge of my competence in a sub-discipline, but I try to make it clear when I am certain of something, or merely think its probably so. Humility helps… and it would help some financial journalists as well, who don’t always understand the depths of what they are writing about.
    I give other bloggers room. Most everyone has something good going on, but they need to focus on their circle of competence, and pursue that assiduously. That might not mean that you become a high profile blogger, but you will gain an audience of appropriate size who will think that you know your stuff.

  • Bill aka NO DooDahs! October 11, 2007  

    I have seen far too many actuaries that can pass tests but can’t price their way out of a wet paper sack; far too many “piled high and deep” economists that prefer mathematical mast-, er, manipulation to marginal economic thought, etc. Supposedly writers like Mish, Ritholtz, and Roubini are very qualified to make long-term economic and market prognostication. Much more qualified than I am, ROFLMAO. Hussman’s qualifications are impressive, as are his five consecutive years of stock market underperformance while stating that market conditions are unfavorable.
    I think results are the only true credentials. Much of credentiality has the economic purpose of artificially limiting the talent pool in order to drive up wages, i.e., a glorified Plumbers and Pipefitters Union with apprenticeship programs.

  • Bill aka NO DooDahs! October 11, 2007  

    If I could edit, I would, and add:
    Why do we choose certain methods? B/C we want the results ascribed to such methods.
    Why do we backtest new methods? B/C we want to know what kind of results to expect.
    Why do FOF managers ask for audited results? B/C results are an objective check on non-disclosable methods.
    Why do we examine the logic of methods? B/C we want to know if the observed (test or actual) results are replicable.
    Finally, why do people choose credentialed individuals? B/C they want some quality assurance of expected results, and they’ve been trained since birth that credentials ensure results. Of course, as some of us have gotten older, we’ve seen through that simplification ….

  • RB October 11, 2007  

    Some random thoughts:
    1. CXO has an entire section devoted to experts and their limitations
    2. Dreman favors the outside contrarian (rearview) view over the inside (windshield) view (analysts). This would be in line with Buffett’s basis for Generals in his 1965 report: “There is often little or nothing to indicate immediate improvement”. Two experts could therefore be in conflict in such cases.
    3. The more complex the problem (such as the macroeconomy), the higher the threshold. Perhaps why index funds outperform the vast majority of professionals.
    4. Consensus of experts outperform a single expert and a trend indicator may be approximately equivalent (see CXO).

  • Jeff Miller October 11, 2007  

    I appreciate the comments as I continue to develop this idea. I am working from the perspective of an intelligent individual investor who decides to start managing his/her own account.
    Mike – the things you mention (track record, experience, etc.) are all valid credentials. A blogger or newspaper should cite these. Also, having a degree does not, in and of itself, prove anything. I believe that the people I recommend are all quite clear about their background. It is my own reading of their work that leads to the recommendation.
    David has the drift of my concept. It is tempting to offer opinions on everything, particularly when someone puts a microphone in front of you. David is pretty clear where he is operating from expertise, and his work speaks for itself.
    I try to do the same thing. As a long-time manager of inter-disciplinary efforts, I am good at identifying experts. I am a consumer of expertise. As David points out, this is not the road to major readership, but we do not care about that.
    Bill mentions some of the big-time blogs where they pretty much have an opinion on everything. This is entertaining and provides a lot of fresh content. But Bill, Ritholtz has a law degree and takes pride in not being an economist. Mish’s qualifications are not clear from his profile.
    I plan to describe further how one might use a wide variety of resources, explaining my own methods.
    Thanks again for taking the time to comment and I hope we get more.

  • Zero Beta October 17, 2007  

    As someone who has a blog but no real “credentials”, it may come as a surprise that I could not agree with you more. Credentials are very important in financial media of any kind and financial blogs are not excluded.
    Training, education, and experience are all very important in order to develop a logic and reasonable conclusion and there are a lot of people out there who blog about stocks and give recommendations who should not be or for disingenuous purposes.
    I do disagree, however, that having bloggers without credentials is altogether bad. I would contend it is instead good. Blogging gives an opportunity to have low entry barriers to journalism – in this case financial journalism and financial analysis. These barriers enable more voices to be heard, however the cream rises to the top.
    Blogs enable people to comment and share information, which is inherently a built in system of checks and balances. If someone’s post is bullshit, it can be called out as so and they will lose credibility. If someone’s ideas groundbreaking or they are interesting or provoke thought they will usually find themselves with more traffic.
    Many great things come about by accident. In a free market for ideas, we would do ourselves a disservice in not allowing certain ideas to be expressed.
    In my own case, my brain is constantly filled with thoughts and ideas and began writing as a way of clearing up and improving upon my thought and analytical process. I enjoyed this, and thought that someone out there may appreciate my thoughts, and having an audience would motivate me to think even more. I posted a “Disclaimer” of my biases and experience early on. I think its important to have biases out in the open because everyone has them. Otherwise, it is easy to be unauthentic and/or misleading. In my blog I encourage criticism and acknowledge inexperience.
    I also agree greatly with Mike above. Credentials are the driver’s license for one’s field. Anyone can pass a road test, but not everyone is a great driver. When combined with curiosity, humility, erudition, and intellect, credentials are valuable. Otherwise, having that driver’s license can endanger everyone on the road as well as pedestrians.
    I’ll leave it off with a lyric from an obscure (to most) hip hop artist El-P, who makes very abstract music that is quite profound in addition to post-apocalyptic. I think it sums up this debate quite nicely. In his song, “Up All Night”, he lashes out against “establishment” and the state of the world these days, as a response to the question of what do you know he proposes, “I may have been born yesterday sir, but I stayed up all night.”
    Great blog by the way. One of my regular reads.

  • Jeff Miller October 17, 2007  

    Zero –
    Great observations. You have your finger on the key issues.
    Just for the record, I hope I have not said that some specific credentials were required for blogging. This would be the equivalent of book burning or something! The more the merrier.
    I am concerned about the consequences for individual investors, however. You say that if someone posts inaccurately they can be called out. Unfortunately, that is not true. I will elaborate on these reasons as the series progresses. The corrective mechanism is sadly lacking.
    Furthermore — correction often requires some basic knowledge on the part of the reader, and the bar may be too high. Check out my recent post on quantitative IQ and you will be ready to follow this argument.
    Meanwhile, thanks for mentioning your blog, which I will follow with interest. I already see a theme or two for discussion.
    Thanks again,

  • Zero Beta October 17, 2007  

    Thanks for the feedback. See I still don’t believe that credentials matter if you are recommending a stock. Should someone recommend stocks who does not have the proper experience? No, of course not. But in an information society when an average investor can turn to many expert sources all eager to tell them their opinion, why would they go to someone who is not an expert? For a blogger without credentials and who is also not a good stock picker to have a blog that would be somewhat highly regarded is quite unlikely. And, if an investor is foolish enough to take stock picks from one inexperienced blogger who is to say that he wouldn’t do it from another inexperienced person, or worse, someone has bad intentions and conflict of interest.
    Years ago, Malkiel showed that a monkey can throw darts at the WSJ and do fine. Most enormous investor losses have had to do with people with great credentials giving research because of some conflict of interest – usually making money for himself or some company he/she worked for. The Jack Grubmans and Boiler Room Pump and Dumpers supposedly had credentials. To focus on credentials is, in my mind, MORE dangerous. The average Joe is not going to be that much worse than an index over time, and unless he is that much better will probably only be viewed by a few people. Credentials inherently have the ability to mask deceit and fraud. A lack of credentials inherently has the effect of adding skepticism and doubt. Logically, if someone wanted to defraud or screw investors, they wouldn’t opt to go the route of doubt and skepticism. In a group of stock picks from people with credentials, you have a better chance of getting more well-researched, fundamental or technical stock picks, collectively that MAY have higher expected returns than the equivalent from a amateur stock picker. However, you also have a better chance of having a few stocks with expected returns of zero.
    The correlation between credentials (whether they are true or not) and fraud is much stronger than that of inexperience and fraud.

  • Bill aka NO DooDahs! October 18, 2007  

    “For a blogger without credentials and who is also not a good stock picker to have a blog that would be somewhat highly regarded is quite unlikely.”
    It happens all the time, my friend. All the time. Ex., the most highly regarded economic pundits on the web are demonstrably full of ##$^% when it comes to making accurate economic predictions, yet there they are, quoted in the MSM, appearing on Sat TV, and at the top of the Alexa and Technorati rankings.
    It appears that the public demand for commentary on the web is based on something OTHER than accuracy.

  • Zero Beta October 18, 2007  

    Agreed, but most of them have credentials, they are just full of sh*t or wrong. Whether their credentials are justified based on their skill is a whole other argument. I’m talking about the armchair economist who moonlights at as a bartender at Ruby Tuesdays. This person has no credentials, but I argue is less dangerous and will never reach the top of Alexa unless he is at the very least logical and most of the time somewhat correct.