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Sat May 17, 2014

In 'Clash Of The Financial Pundits,' Clarity For The Investor?

Originally published on Wed June 11, 2014 1:51 pm

Millions of Americans get financial advice from pundits on talk radio and cable television.

Since the 2008 financial crisis, many of those pundits have gotten a bad name for failing to warn investors about the crash. Yet public frustration has done little to hurt the financial media industry as a whole.

In their new book, Clash of the Financial Pundits, Joshua Brown and Jeff Macke argue that financial punditry is not going anywhere; it's been around as long as there have been economies.

The book includes interviews with high-profile pundits, including Jim Cramer of CNBC's Mad Money, Business Insider CEO Henry Blodget and businesswoman Karen Finerman.

Author Joshua Brown, himself a pundit on CNBC, discussed the history of financial media and the value of pundits who sometimes get it wrong with All Things Considered guest host Tess Vigeland.


Interview Highlights

On Roger Babson and his Black Friday speech

He's essentially a very smart man, he's a public speaker, he's an inventor. He's a little bit wacky, but he's a very deep thinker. And he's giving a speech one day at the college that now bears his name in Massachusetts, hundreds of miles away from Wall Street, and for the first time ever the New York Stock Exchange is piping in his remarks via telegraph and putting that out there to the traders who are working on the floor.

And this is in that fateful day in 1929 where the top is put out on the market. All of the opinions that he was espousing he had already done for years — that crisis was on the way — and it's still a mystery to this day, all of a sudden the traders decided to listen to Roger Babson. But, you know, that gives you a sense of how powerful punditry can be and how far-reaching its effects can be.

On the public's financial literacy

I think the public uses the opinions that are everyday present in financial media pretty poorly and it's not their fault. I think that people have trouble distinguishing between the time frame of what someone's saying and whether or not it should matter to them.

So you can have a scenario where the regular investor is watching television, there's a gentleman on the screen talking about, 'You have to sell this, you have to get out of this.' But he's a trader, and he's thinking about today and tomorrow, whereas the viewer is thinking about ... a 10- or 20-year retirement that they're trying to fund.

On the popularity of financial media

The way to think about financial media is the same way that you think about the weather. It's when the storm is hitting that all of a sudden everyone is glued to Bloomberg and CNBC, and they're on the websites looking for information. And I think in the absence of those types of storms, the financial media — who want viewers, they want clicks on their sites and on their apps — they have to gin up their own emergencies.

On the value of financial punditry

I think the value of punditry in general is that there are really smart people that can educate you about what's happening in the market. The danger is when you take that to the next step and you decide that something might be actionable that isn't.

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Transcript

TESS VIGELAND, HOST:

Millions of Americans get their financial advice from high profile financial pundits on talk radio and cable TV. Think Jim Cramer of "Mad Money." And the talking heads on CNBC. Whether the average investors should pay attention to any of it is questionable. The new book "Clash of the Financial Pundits" takes on that question in interviews with some of those personalities.

It's also an intriguing chronicle of the history of money punditry. Co-author Joshua Brown, himself, a talking head, on CNBC, joins me to talk about the book. Josh, welcome to the program.

JOSHUA BROWN: Thank you so much.

VIGELAND: You know, I think we all think of the era of financial punditry as being a fairly new one, you know, Jim Cramer, CNBC and the like. But the book points out, that this is really not new at all. And in fact, market punditry goes back almost a century. Tell us about Roger Babson.

BROWN: Sure. There's a really interesting case where he's essentially a very smart man, he's a public speaker, he's an inventor, he's a little bit wacky, but he's a very deep thinker and he's giving a speech one day at the college that now bears his name in Massachusetts, hundreds of miles away from Wall Street, and for the first time ever, the New York Stock Exchange is piping in his remarks via telegraph and putting that out there to the traders who are working on the floor.

And this is in that fateful day in 1929, where the top is put out on the market. All of the opinions that he was espousing, he had already done for years. The crisis was on the way and it's still a mystery, to this day, why on this one day, all of a sudden the trader on the floor decided to listen to Roger Babson. But, you know, that gives you a sense of how powerful punditry can be. And how far reaching its effects can be.

VIGELAND: How do you think people use financial punditry and advice today? Do most investors see it as entertainment or are they acting on what they're hearing on TV and radio?

BROWN: I think, the public uses the opinions that are everyday present in financial media pretty poorly, and it's not their fault. I think the people have trouble distinguishing between the time frame of what someone's saying and whether or not it should matter to them. So, you can have a scenario where the regular investor is watching television.

There's a gentleman on the screen, talking about, you have to sell this, you have to get out of this. But he's a trader. And he's thinking about today and tomorrow, whereas the viewer is thinking about, you know, a 10 or a 20 year retirement that they're trying to fund.

VIGELAND: But it seems like, you know, there is so much more financial news out there than there ever has been before. And that ubiquity really came at the same time as Americans suddenly started having to really pay attention because they had these self-directed 401K's instead of pensions that were being managed by other people. Do you think that that timing really worked against the average investor, so they started to feel like they had to pay attention?

BROWN: You know, I think that's definitely an important point. The way to think about financial media is the same way that you think about the weather. It's when the storm is hitting, that all of a sudden, everyone's glued to Bloomberg and CNBC and they're on the websites looking for information. And, I think that, you know, in the absence of those types of storms, the financial media, who want viewers, they want clicks on their sites and on their apps, they have to gin up their own emergencies.

VIGELAND: But then how do you go about figuring out who you can trust and who you can't? Because we know, from studies, just of basic financial literacy, that people have trouble with their checking and savings account.

BROWN: Yeah. You know, it's funny. Then there are people that scream from the hilltops about we need more financial literacy in this country. There was a study done where they gave a control group of investors a certain amount of financial literacy and it turned out that that bred overconfidence and it led to them doing even worse...

VIGELAND: Oh, jees.

BROWN: ...then people that hadn't been put through the course. None of us can see the future. And some of the smartest, most successful professional investors on the street, are the people that are the first to tell you, hey, you know, I got lucky along the way.

VIGELAND: But if that's the case, you know, you have this great quote from Warren Buffett, of all people, who says: Forecasts may tell you a great deal about the forecaster, they tell you nothing about the future. If that is the case, what is the point of financial punditry at all?

BROWN: The financial media has had some low lights, but it's had some highlights as well. You know, those important moments during various crises where the media calmed investors down, as The Wall Street Journal attempted to do during the panic of 1907. But then, you know, again, there are the low lights, there's the fact that most of the financial media manage to miss the crisis. There's the fact that a lot of pundits steered people in the wrong direction.

So I think the value of punditry, in general, said there are really smart people that can educate you about what's happening in the market. The danger becomes when you take that to the next step and you decide that something might be actionable that isn't.

VIGELAND: Josh Brown in the co-author of "Clash of the Financial Pundits: How The Media Influences Your Investment Decisions For Better or Worse." Josh, thanks for coming in.

BROWN: Tess, thank you so much for having me.

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