Image credit: “The Fortune Teller,” Georges de la Tour, ca. 1630, The Metropolitan Museum of Art
By Jason Zweig | June 28, 2015 7:47 p.m. ET
This article, which I wrote years ago for the Donald W. Reynolds National Center for Business Journalism, no longer seems to be readily available online, so I’ve fished it out of the Internet Archive Wayback Machine to post it here. It sets out my thoughts on the practice — and malpractice — of financial journalism. With personal-finance coverage seemingly in retreat even as investors crave explanation more urgently than ever, this seems a good time to post these old thoughts anew.
Good Advice, or Advice that Sounds Good?
Published: Wednesday, January 28, 2004
In September 1992, Jim Michaels, then the editor of Forbes, put me in charge of the magazine’s mutual-fund coverage. Walking back to my office, disgusted with my fate, I kicked the carpet in frustration. “The worst job in the place,” I fumed, “and he had to give it to me.” But I got more mail and phone calls from readers in the next six weeks than I had in the previous six years. Despite the pride I had taken in my earlier stories, I quickly realized that I might as well have written them in medieval Mongolian for all anyone cared.
The public has a special relationship with personal-finance journalists: People turn to us for advice on how to make their lives materially better. No one believes a foreign correspondent is supposed to offer diplomacy, or political reporters should tell voters exactly which levers to pull. But people want us to tell them what to do – and they do what we tell them.
In December 1995, shortly after I joined Money from Forbes, I wrote a cover story praising a mutual fund. An executive from the fund later told me that nearly $100 million had flowed in as a direct result of the article. He thought I would be pleased by his news. Instead, I shuddered – for with the power to move money comes responsibility. That first day, when I had asked Jim Michaels if he had any advice for his new mutual-funds editor, he shot back: “Just don’t get any blood on your hands.”
With each passing year I’ve understood more clearly what he meant: Every time we open our mouths in print, online, or over the airwaves, the investing public moves millions of dollars. If we get it right, the people who follow our advice will be able to afford to send their kids to college or buy a better house or retire in comfort. If we get it wrong, they will come up short – while we will bear no liability and suffer no punishment. The sole constraints on what we write are our editors and our own consciences.
In the short run, however, the best way to get ahead is to check your conscience at the door. Most readers, and all too many editors, want to hear about the newest, the hottest, the get-rich-quick schemes, the secret “keys to wealth” that have miraculously been overlooked or hidden by “the experts.” Good advice easily gets drowned out by advice that just sounds good. In 1999, any journalist who peddled the sexy idea of putting all your money in tech stocks was hailed as a genius. At the same time, anyone who preached the sober gospel of caution was called a “moron,” a “f**head” or an “ignorant a**hole.” (That is a delicate selection from among the thousands of emails that criticized my online columns in 1999 and 2000.) When markets go mad, the responsible financial journalist has to stand as a voice of reason – even though leaning against the wind isn’t easy in a hurricane.
A couple years after I joined Money, I stumbled across an obscure academic article that shocked me. A psychologist had compared the investment results of people who received frequent news updates about their stocks against those who got no news at all. He found that no news is good news: Investors who were kept in the dark outperformed the news junkies by up to 56%.
Thus, personal-finance journalism can hurt people instead of help them. How can we work to become part of the solution? I have a few suggestions:
• “If it sounds too good to be true, it probably is” is false. If it sounds too good to be true, it definitely is.
• Never recommend anything to your readers that you would not invest in yourself.
• Be a pathological skeptic. Ask: If this is such a great idea, how come no one else thought of it before? If this is such a great idea, why on earth would this person tell anyone about it? After paying the costs of trading and taxes, will this “strategy” still “beat the market”? What is the past track record of other people who have tried similar approaches? If this turns out not to work, how much money could my readers lose? If I read this company’s financial documents properly – from back to front, as if they were written in Hebrew – what troubling details can I find in the fine print that my readers might miss?
• As the great Benjamin Graham taught, stocks have prices; companies have value. Buying a stock because its price has been rising – but without investigating the underlying value of the business – is like buying a house without ever stepping inside.
• The only thing that never suffers a bear market on Wall Street is stupid advice. You must root it out and expose it – by talking to the smartest and most contrary people you can find, by studying the history and psychology of the markets, by mastering the numbers yourself and by testing them against the basic laws of statistics.
• The human brain is hardwired to perceive “predictable” patterns in data that is, in fact, totally random. Nearly every “market-beating” strategy ever devised is based on the delusion that a temporary hot streak will persist into the future.
• The best way to silence a market forecaster is to ask for the complete record of all his past forecasts. The best way to keep yourself humble is to track your own forecasts.
• In my columns, I write the exact same thing between 10 and 60 times a year, making sure none of my readers can tell that I’m repeating myself. That’s because there are only a handful of enduring truths about investing, but editors demand more than a handful of columns each year. Sooner or later, you must either lie or repeat yourself. Since I prefer the latter choice, I scour websites and journals in neuroscience, evolutionary psychology and animal behavior, looking for research that will give me new ways of saying the same old things. That way, the only person who knows I’m repeating myself is me, and I never stop learning and stretching.
• In a financial world teeming with charlatans, fools and thieves, the journalist’s role is to advise and protect readers, not to titillate them with phony promises of fast riches. When people stake their financial future on your words, you don’t want to end up with their blood on your hands.
Source: guest essay, Donald W. Reynolds Center for Business Journalism
For further reading:
Benjamin Graham, The Intelligent Investor
Jason Zweig, Your Money and Your Brain
Jason Zweig, The Devil’s Financial Dictionary