21st Century Witchdoctors
Gawker has an amusing roundup of bad stock picks by prominent financial magazines.
Which reminds us of one of the enduring mysteries of the modern world — why is anyone taking investment advice from these financial pundits who go on TV and write in magazines about which stocks you should buy and so forth. There are very strong theoretical reasons to believe that these people couldn’t possibly know how to beat the market, and common sense suggests that if you did have some secret stock insight the smart thing to do would be to make money by investing rather than going on TV and telling you what to do.
I suppose this all becomes a bit less mysterious when you consider that in traditional societies you have high-status people with jobs in the field of witchdoctoring or entrail-reading and the like. One interesting question is whether or not the proportion of the population engaged in the “pretending to be able to see the future” profession has gone up or down over the past 500 years.
29 Responses to “21st Century Witchdoctors”
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September 17th, 2008 at 7:30 pm
“One interesting question is whether or not the proportion of the population engaged in the “pretending to be able to see the future” profession has gone up or down over the past 500 years.”
I don’t know the answer to that, but I do know for a fact that the proportion of the population engaged in the “pretending to be able to see the future” profession will rise fourfold over the next 500 years.
September 17th, 2008 at 7:31 pm
why is anyone taking investment advice from these financial pundits who go on TV and write in magazines about which stocks you should buy and so forth.
The greater fool theory.
Making decisions based upon profiles in print monthlies — with a lead time of perhaps a couple of weeks on the last copy to go to the printers, and maybe a month or two on feature stories — seems really bizarre. Yeah, there’s the whole idea that you invest where there’s long-term growth and structural soundness, but
Thing is, financial journalism has fads like political journalism: contrarian pieces, the next big thing, etc.
September 17th, 2008 at 7:33 pm
~fartz~
September 17th, 2008 at 7:33 pm
Matt, tell me, how do you think Obama will do in the first debate?
September 17th, 2008 at 7:34 pm
Nice writing. You are on my RSS reader now so I can read more from you down the road.
Allen Taylor
September 17th, 2008 at 7:53 pm
To “beat the market” you have to necessarily invest in stocks that are unpopular. So sayeth Ben Graham, so sayeth we all.
September 17th, 2008 at 7:57 pm
This is a great piece that was in Slate a while back about the idiocy of Jim Kramer and his shtick.
http://www.slate.com/id/2162460/
September 17th, 2008 at 8:06 pm
“[C]ommon sense suggests that if you did have some secret stock insight the smart thing to do would be to make money by investing rather than going on TV and telling you what to do.”
As we all know, the two are mutually exclusive.
September 17th, 2008 at 8:08 pm
Re Matthew’s comment “There are very strong theoretical reasons to believe that these people couldn’t possibly know how to beat the market,”
————-
1) You’re wrong. The way to beat the market is to find out early that a stock you’re holding is about to turn into rancid catshit
(They ALL DO eventually — look at what happened to GE while everyone was kissing Jack Welch’s ass.
$9 BILLION shortfall in Insurance Reserves so Neutron Jack could make his numbers.)
2) So, you need to unload the dog onto the Rubes. Which means you have (or your hired puppet) has to go on TV
and tout the hell out of the dog. Aka put lipstick on the pig. Kinda like what McCain is doing with Palin.
3) When the hicks bite, unload it at a good price and then short the piss out of the motherfucker.
September 17th, 2008 at 9:09 pm
I suppose this all becomes a bit less mysterious when you consider that in traditional societies you have high-status people with jobs in the field of witchdoctoring or entrail-reading and the like.
People (like that) on TV sell the same thing that priests, rabbis, preachers, and casinos sell: hope.
max
['Plus entertainment.']
September 17th, 2008 at 9:16 pm
The way to make money in the stock market is to know today what stocks the witch doctors are going to be pimping tomorrow.
September 17th, 2008 at 9:22 pm
why is anyone taking investment advice from these financial pundits who go on TV and write in magazines about which stocks you should buy and so forth.
I’m glad you asked. For $29.95, I’ll send you a book and DVD that explains this ancient mystery by delving deep into the conundrum of post modern late night television viewing. But wait, there’s more, I’ll throw in a complementary set of rare entrails of an ancient and extinct species sent to you by our source who lives deep within the recesses of the Amazon rain forest. Oh no you don’t, don’t turn that channel, don’t hit that mute button, unplug that Tivo and set your course for Instant Millions. Because we are going to pull out all the stops today and send you your very own Witch Doctor. We’ll fly in Andy Kaufman’s personal physician. You’ll marvel and bask in his expertise in both medicine and financial consultancy. That’s right, you’ll have your very own personal portfolio managing physician practitioner. Imagine the wealth. Imagine the joy that comes when you go from entrails to $million$. Imagine understanding why you’ll send me $29.95. Act now, offer limited while supplies of Witch Doctors last.
September 17th, 2008 at 9:43 pm
Kudlow is a political hack, while Cramer is a remarkable analyst who nevertheless (of course) does not beat the market.
September 17th, 2008 at 9:50 pm
Off topic: How long before the McCain/Palin camp either insinuates or directly accuses Obama and/or those in his employ of hacking Palin’s e-mail account? Failing that level of accusation maybe at minimum fingering a very close supporter or surrogate as the instigator of the theft? Predictions?
September 17th, 2008 at 9:59 pm
Probably less, but only because the miracle of a mass media lets one witchdoctor reach more people at once than the traditional witchdoctor could.
September 17th, 2008 at 10:10 pm
Any fool knows that the real way to make millions is by flipping houses.
September 17th, 2008 at 10:49 pm
“…why is anyone taking investment advice from these financial pundits who go on TV and write in magazines about which stocks you should buy and so forth…”
Here’s a clue in the form of a multiple choice question: Does a Wall Street firm “upgrade” a stock because:
* They want to share the results of their analysis with the public.
* They think the stock is a dog with fleas so they pump it while their big clients sell.
* They’re trying to create a great shorting opportunity.
* The company gave the firm’s analysts inside or advance info.
* Other
Go ahead Matt, wing it.
September 17th, 2008 at 11:25 pm
There are very strong theoretical reasons to believe that these people couldn’t possibly know how to beat the market, and common sense suggests that if you did have some secret stock insight the smart thing to do would be to make money by investing rather than going on TV and telling you what to do.
I don’t know why someone didn’t quote Buffett and be done with it. If people like Cramer or the CNBC crew were so smart(excepting Santelli), they wouldn’t be telling you what stocks they are buying. They wouldn’t tell you because it makes it more expensive for them to load up on a position. If you buy stock on the advice of Cramer or anyone of those other TV carnival barkers, you are asking for trouble.
September 17th, 2008 at 11:27 pm
Kafka:
I’d bet #’s 2 & 3. Don’t you ever wonder why, until a few years ago, you never heard a firm rate a stock a “sell”?
September 17th, 2008 at 11:40 pm
if you did have some secret stock insight the smart thing to do would be to make money by investing rather than going on TV and telling you what to do.
If you did have some secret stock insight, then the smart thing to do would be to use it to invest and then go on TV telling people about it after the fact. If you bought a stock, you’d want others to buy it so it’d go up; and if you sold a stock, you have nothing to lose after you’ve gotten out.
September 18th, 2008 at 2:11 am
I have a theory. If fools listen to these people, smart people will too. If fools follow their advice, the stocks they pick will be overpriced, so it is smart to short them (more generally to do the opposite of what they say).
Now the problem with this theory is that the origin of the original fools is unclear. However, maybe they don’t exist. Maybe everyone who follows the TV witchdoctors is a 2nd order fool who irrationally believes that there are large numbers of first order fools following the advice of the witch doctors.
Or maybe everyone is a third order fool buying what the witch doctor recommends, because they think that everyone is a second order fool. or maybe etc.
In any case, the theory addressed the deepest mystery of all, which is why Donald Luskin survives as an entrail reader. My honest theory was that people get his advice then do the opposite . A friend e-mails to say that his brother, who is a trader, uses exactly that strategy (among others no doubt). In the case of Luskin, there is no need to believe that he has followers who drive up prices. He’s just wrong remarkably often. Economic theory can not explain such a record (which is just as difficult to achieve as being right remarkably often). That’s why economists find him so frustrating.
My theory is that he sold his soul to the devil’s idiot son in law.
September 18th, 2008 at 2:19 am
Exactly, phil. These guys don’t lose anything by telling us to do something after they’ve already done it.
And give Cramer credit; he was telling people that Lehman Brothers was going down the tubes months ago. Not that you had to be some sort of super genius to figure that one out.
September 18th, 2008 at 10:15 am
The way to make the most money in this type of investment business is to get paid for investing other people’s money. You make recommendations, people believe you, you invest their money and they pay you a commission. You then put that commission in a safe, conservative investment. You earn your money and have none of your own money at risk.
So, if you have a really hot stock tip, the way to make money is not by investing in it yourself and keeping it secret; you have your own money at risk that way, and if the stock tanks, you lose. Instead, you tell others about the really hot stock tip, they give you money to invest, you earn a commission and pocket it. If the stock tanks you still earn money with no risk. If the stock soars your investors make money and come back to you for later transactions, on which you make more commissions.
That is the basic rule of this type of investing: never use your own money.
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