When the Blogosphere Works — and When it Doesn’t

At "A Dash" we have an ongoing interest in how consumers–especially investors– can get useful information from the Internet.  It is one of the chapters in our book, where will consider in detail the various Internet sources.  It is important to understand what one can and cannot learn from the Wild West Blogosphere.

Background

Abnormal Returns, one of our long-standing featured sites, helps investors learn what they should be reading.  It takes a lot of work to read and consider scores of different offerings, selecting a few to include in the daily list of readings.  The comments helpfully suggest the nature of the content.  We look for this guidance every day, and so should you.

We think of our "Abnormal Friend" as an editor who considers whatever we present.  While "A Dash" is not a traffic-driven business, we are always interested in the "editor's" reaction to our work, and we appreciate getting some new readers.  Without readers and their comments, our job would be more difficult.

On occasion, the author of Abnormal Returns, an investment professional with impressive credentials, steps out of his normal role and becomes an author.  This is almost always interesting.

The Issue

In a stimulating and provocative article, Abnormal Returns points out the advantage of the blogosphere over mainstream media.  The article cites another of our featured sources, Adam Warner, as follows:

Do you remember the incident last month when a noted writer went off on the editor of one the most successful sports blogs? Adam Warner at the Daily Options Report
has a nice post on the topic of how the blogosphere helps sort through
competing claims. It is not always a pretty process. A site like ours
helps play a small role in this by pointing out the current schools of
thought. We like how Adam concludes:

To me, it’s ultimately a meritocracy, albeit an
imperfect one. There are some great blogs that get lousy readership and
some lousy ones that top the charts. But by and large, it sorts itself
out…

This is a strong argument, one well worth our attention.

A Problem?
As we would expect, it does not always work so smoothly.  As so often happens, considering extreme cases helps to highlight the key variables.  Let us consider one of the finest hours for the Internet in action.

They call it "Rathergate."  Too bad.  This was a sad end to a distinguished career.  To summarize briefly (full story here)  in the 2004 Presidential election campaign there was a big issue about George W. Bush's military service. CBS ran with a story about the President's military service, using documents from his commander, then deceased.

Within hours, significant challenges to the story appeared on the Internet in blogs and forums.  Several sources noted discrepancies that called into question the authenticity of the documents.

Key Criteria

The challenge to CBS worked for several reasons:

• There was widespread interest.  This was important news, about an important issue.
• The key question played to the strength of the Internet — there were relevant experts out there, and this was a good way to reach them.
• The evidence was clear and easy to understand.  The interpretation of various typefaces and other evidence did not require any special training.  The average reader could see, understand, and reach a conclusion.
• CBS could not "stonewall."  Other media sources understood and took up the case.

How Does this work in the Investment Blogosphere?

Simply put, it does not.  Let us suppose that a big-time pundit (think CBS) puts forth an outrageous claim that can be proved to be incorrect.  Of the many thousands reading the claim, a few note the error.  Let us go back to the key criteria.

• There is no widespread interest.  Readers are uninterested in disputes, (he said this, he said that, blah blah).  Unless the specific question is large, it becomes a death by a thousand cuts.  Many distortions build a false picture.
• There are relevant experts, but their incentive to challenge CBS is lacking.  Most of those writing on the Internet are driven by traffic.  It is not wise to "step on Superman's cape" so most experts will not do so.
• The evidence may not be obvious to the lay observer.  It is there, and quite understandable, but it requires a few minutes of reading.  This gets beyond the hurdle for most readers.  It is not the graphic "set shot" of the Rathergate memos.
• Superman can stonewall.  He needs only to act "put upon."  There is no incentive for anyone to challenge him.  In fact, the incentives are the opposite.  Suppose you are writing a relatively new blog for a MSM outlet.  Your success and your job are related to traffic.  Would you rather get some friendly recommendations from Superman or get into his Hall of Shame?

Conclusion

Abnormal Returns has raised on important and provocative question.  We suspect that he might eventually be correct.  It will require something far beyond his normal role.  The gatekeepers will need to be more like movie reviewer par excellence Roger Ebert, willing to criticize and review information instead of merely linking.  For the moment, the blogosphere does not have the self-correcting mechanisms that are needed.

Here is a simple test.  If the New York Times ran a story that had an error — one that could be proven — there would be a correction.

Do we see such corrections in investment blogs?