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Financial Bloggers: The Conscience of Wall Street?

by: David Merkel August 21, 2008 | about stocks: NWS / TSCM    
David Merkel

David Merkel

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Many CFAs blog, though it is a tiny fraction of the total pool of CFAs. Many of them contribute to Seeking Alpha. Granted, if you look at lists of the most popular investment weblogs, few of the writers are CFAs. Why? Well, having basic knowledge about investments and ethics does not mean that you can write about it well. For those who can write well, there are other options, most of which are more remunerative:

  • Write internal research for a buy-side firm that no one else sees.
  • Be a sell-side analyst for those who trade with your firm.
  • Write a newsletter for paying clients.
  • Manage money, and write an entertaining quarterly/monthly missive that adds to the subjective value of having money managed by you.
  • Write for RealMoney (TSCM), or some other major media newspaper/website.

The thing is, for most bloggers, it is self-expression, not remuneration, that matters. For me, it is giving something back to the broader investing community. The retail investor does not have many friends.

So, it was with puzzlement that I read Susan Weiner’s piece called, “Investment Strategy Blogs Slow to Influence Financial Advisors,” as cited by Felix Salmon. Now, don’t get me wrong here, becoming a CFA opened a lot of doors for me. But the CFA Institute, with its curriculum does not have a monopoly on training smart investors. For those starting out young, getting an MBA from a well-regarded school can often be a better choice. On the buy-side, having a CFA has some punch, but not so much on the sell-side.

I wrote for RealMoney for 3.5 years before starting my blog. Writing for RealMoney taught me a lot about how to phrase things in an interesting way. Most of the contributors there were/are very good at expressing themselves. Most are not CFAs. Almost all journalists aren’t CFAs either. Buffett is not a CFA, though his mentor, Ben Graham, helped found the predecessor to the CFA Institute.

My surprise as a blogger has been the quality of the information/advice that I have run across in blogging. The best are reflected in my blogroll, but there are many others that I like but don’t read regularly. Bloggers tend to be more pointed, sometimes more sensationalistic, than the financial press, and the sell-side. But there is a virtue to blogging that the others lack: criticism.

Look, I make mistakes. As a blogger who prizes his reputation (and honesty generally), when I make a mistake, I try to be fast to confess it. Blogging is more interactive than other forms of media, so the feedback cycle is faster for those who take honesty seriously. Those that make too many mistakes, or refuse to accept criticism, get marginalized, and quickly.

Blogging has another virtue, in that bloggers are willing to take more chances in what they say. Those who are wrong too often are disregarded… it’s a tough environment out there. But those who are willing to hazard unvarnished opinions about tough issues will gain a following, if they are correct often enough. Ask yourself this, in the recent credit crisis, who has been more accurate in their predictions, the mainstream media, the sell-side, or leading finance bloggers? My money is on the bloggers.

Now, the articles cited above glorify CFAs, licensure, and the mainstream media. None of those are guarantees of good investing or writing. Those that I interact with in the mainstream media are pretty sharp, and I think quality has increased there over the last ten years. TheStreet.com has something to do with that, in that they have trained a bevy of young smart journalists that can write, and they understand the markets better then 95% of the population.

I place more stock in a strong liberal arts education that does not neglect business and the hard sciences. Like Buffett and Munger, lifelong learners tend to be some of the best investors and writers. We are strong generalists. The CFA imparts a limited set of knowledge that is very useful, but most CFAs are mediocre investors. As Ken Fisher said to me, “The first thing you have to do is forget everything you’ve learned in the CFA training.” He also told me to forget what I learned from his books. What is known is not valuable. What do I know that no one else knows? That conversation kicked off my current investing approach, of which, 40% of it derives from the useful CFA syllabus. (Though the advanced investing syllabus for the Society of Actuaries has a few things to commend it that the CFA does not have.)

You can get a CFA. You can pass the Series 7, and become a broker. You can become a financial journalist. None of those guarantee that you can add value. The best in each of those areas become known for the quality of work that they generate. The cream rises to the top.

So, I put out this challenge to those that are skeptical about financial bloggers. Look at the sites in my blogroll, and tell me which ones have poorly thought-out opinions that will harm readers. I maintain that they are all useful for both experts and retail investors, and are a useful supplement to conventional investment research that doesn’t take chances, because it is not in their interest to do so.

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This article has 4 comments:

  •  
    Aug 21 07:32 AM
    Great article.
    Reply
  •  
    Aug 21 09:15 AM
    "That conversation kicked off my current investing approach, of which, 40% of it derives from the useful CFA syllabus."

    After bragging about your writing skills I would think you would have rethought the structure of the sentence above.

    And, to say something as silly as "most CFAs are mediocre investors" is just ridiculous. Want to back that up with some empirical evidence?
    Reply
  •  
    Aug 21 10:44 AM
    It follows from the fact that most investors are mediocre investors or worse, by definition. I am surprised that anyone would even try to argue about this.
    Reply
  •  
    Aug 21 05:05 PM
    David - Great article. Just to underscore your comment about blogs, 90% of what I've learned about alternative energy sources has come from the various postings on Seeking Alpha, either as commentators such as yourself or those offering responses.
    Reply
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