The Battle of the Sound Bite

There is some pretty simple advice for individual investors:

  1. Have a plan and stick to it.  It should relate to your time frame and fundamental values.
  2. If you can't figure one out, get some help.   You have a lot at stake.
  3. Turn off the TV!!
  4. If you are going to do your own research — get beyond the "sound bite."

Every time there is a little selling in the market we see the same thing.  Financial television and the leading media sources trot out people who want to seem smart — as if they predicted today's selling.

Some Interesting Slogans

There are a couple of popular slogans that currently have the ring of truth:

Fighting the last war

Generals are notorious for their tendency to "fight the last war" — by using the strategies and tactics of the past to achieve victory in the present. Indeed, we all do this to some extent. Life's lessons are hard won, and we like to apply them — even when they don't apply.

Never meeting a payroll

A term applied to opinionated pundits who lack specific experience or responsibility.

How to be a big-time pundit

This is a pretty simple formula.

  1. You start with one case, one country, one anecdote, or one problem.  Keep it simple.
  2. You then apply the popular "cockroach theory."  It is amazing how people will bite on a simple and stupid analogy (and risk their retirement accounts).
  3. You emphasize that the plural of "anecdote" is data.  This relieves you of the need for any training, skill, or experience in analyzing data.  You can just tell your story.
  4. You invoke –drumroll —-   A CHART.  The chart is supposedly giving "multiple sell signals".  No one asks what your track record has been.  In fact, you have so many conflicting and non-specific forecasts that no one could possibly test your commentary.  You pretend that your chart told you to sell yesterday.
  5. You breezily dismiss anyone taking an alternate viewpoint.  They either "got it wrong before" or said one of the bad words (e.g. contained).

The Reality

Most of the blogging punditry has "never met a payroll" when it comes to public policy.  They are full of opinions, but lack any experience.  It is amazing what happens to ideology when one is confronted with actual accountability.  This is why President Bush and Hank Paulson proposed TARP.  Who would have thought this possible?

The reason is pretty simple.

Governments do not step back and allow disasters to occur.  If you look at the many crises in history, they were all limited, contained, or resolved in one way or another — at least for the last 70 years or so.

Despite these facts, the wrong-headed, inexperienced, and ideological pundits are completely convinced that each new story is another 2008.  This is where the "fighting the last war" comes in.  They lack experience in actual policymaking.  This renders their commentary useless for prediction and irrelevant to those charged with actual decisions.

Investment Conclusion

Most of those getting big-time media are there to "explain" what happened today.  They get to "look smart" by offering tired bromides that make for good sound bites.

A real investor follows the Warren Buffett approach and looks for stocks on sale.  I do not know if tomorrow will be the bottom tick, but I have a nice "buy list" for new investors.  You should, too.

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  • janet May 4, 2010  

    good sound advice.

  • Juhan May 6, 2010  

    Agreed, but if we would to have a new 2008 crisis, governments can’t bail us out. US has leveraged itself way beyond reasonable levels and probably EU will have to do the same.
    Our financial system simply can’t handle another blow like we had in 2008. I’m not saying that all hell breaks loose tomorrow – I don’t know. But it will happen eventually.
    Alternative would be deleveraging but it is hard to see that happening. Even if it would, it would mean lower spending and lower growth for many years.
    Probably there is some growth left in the market, but cross your fingers that when things get ugly, you can keep your capital.
    (I know this doesn’t sound like typical value or long-term investing, but you need to preserve your capital :))