Alexandria, VA (July 28, 1999) -- I confess: I don't read newspapers anymore. Regularly, anyway. Virtually the only medium I use today is the Internet, with the exception of North Carolina Tar Heel sports, broadcast over TV. (I look forward to seeing my Heels on the 'Net soon enough, anyway.)
Thus, among other things, I miss reading my newspaper's business section. Do I regret this? No. Long ago I shunted newspapers aside, finding little of value. Hey, is the Fool saying that all work by our nation's journalists isn't valuable? Nay, dear reader. I'm saying that most anything worthwhile is online as well, and our growing community actively links anything relevant in to the appropriate message board. For instance, by reading our Starbucks message board, I know each day that if anything of consequence was said about Starbucks, one or another of my fellow Fools spread across the nation will have pointed to it right there on the SBUX message board.
But I was in New York today for a TV appearance, and on the flight up I peered a few rows ahead and caught a headline in a paper someone was reading:
Front page, New York Times.
Does this headline strike your fancy? It did mine. Now, most people seem to think that The New York Times is our nation's foremost example of robust reporting. And I'm pretty sure the view is held in the offices of The New York Times. Heck, I'm not inclined to disagree. But curious as I was, I was unable to read the article because it was in this other guy's paper.
So I sat there musing with my fellow Fool employees as to what the author of the article even deemed to be "investing strategies golden in the 90s." Can any such generality be accurate? Useful? I mean, the most popular investing strategy distinctive to the 90s was probably just buying actively managed mutual funds, to which billions upon billions gravitated. Was that the "golden" thing? Or was the gold more closely related to the gold rush associated with that most overused and misunderstood phrase, "Internet stocks"? Were "Internet stocks" golden? Is that what was "weakening"? Do such stocks, I wondered, even qualify as "investing strategies" for the decade, given that most came public in just the past year?
Or what about day trading? Many investing bestsellers these days have the phrase "Electronic" or "Day Trading" somewhere in the title. Did the author consider these to "work"? Were these golden?
My mind flitted as well to the word "weakening." "Investing Strategies Golden in the 90s May Be Weakening." How? What was the evidence?
Later in the day, following an appearance on ABC's The View, I finally grabbed hold of that Times article to see what it said. I noted the author was Gretchen Morgenson, a celebrated business journalist. While I'm not a frequent consumer of business journalism, as I came of age my dad had inculcated in me a respect for Morgenson's work, primarily as a writer for Forbes. I was admittedly skeptical with regard to this article; most business writers have little to offer when writing about the stock market. But when I saw her name I thought maybe she does have something to teach us here.
She does not.
And yet, it's not enough to say this. Fools that we are, we do not believe in offering criticism unless it can be both instructive and constructive. So sit with me for a few minutes and let's explore together why her article -- indeed, perhaps any article with such a title -- is unimaginative, unopinionated, meaningless, rote journalism of the sort that dominates the financial screeds of our time. Not only that, but I'll provide Ms. Morgenson and The New York Times free advice at the end on how it can be of benefit to investors.
The article begins simply. "For most of the 1990s," it starts, "individual investors have become rich in the stock market by sticking to a couple of relatively simple strategies: buying big-name companies whose products they know or use and piling into stocks that have already been big winners."
I don't know what you think of that line. While I agree with it in spirit, I must humorously observe that this has been true not just "for most of the 1990s." It has been demonstrated to any long-term shareholder all century long, and I believe it is a lesson for all centuries. When it comes to investing, those who buy big-name growth companies and exercise foresight and patience get rich over any long-term period, so long as economic or world conditions are not hostile to free-market capitalism.
Of course, this is oversimple, as is Morgenson's lead. Even in the 1990s (or again, any decade) some big-name companies failed to keep up with the market. Or crapped out altogether. K-Mart, Philip Morris, Boston Market, 7-Eleven/Southland, er, The New York Times. All were either underperformers or bankrupt.
What is also missing here is any acknowledgement that many of our biggest journalistic entities were openly bearish and antagonistic throughout the 1990s toward many of these "big-name" companies that are now seen in retrospect to have generated such awesome returns. If you'd listened to the mainstream media back in 1994, you wouldn't have touched America Online with an iron poker. And yet, AOL is referred to in this article as one of the great stocks of the decade. If this "golden 1990s investing strategy" was so obvious, why was AOL among the most highly-shorted stocks on the market in the mid '90s, regularly picked (two years in a row, as I recall) by polls of institutional money managers as the big-name stock most likely to drop?
Such complexity -- here, really nothing more than applied knowledge -- never makes it into Morgenson's article. The fallacious thinking in the article -- starting with its very premise -- is so thick that the common Fool could pick it apart line by line. In fact, if you want to, here it is. But I find that boring, not worth the time. What I'll do instead is point to its five biggest mistakes.
Gretchen's and the NYT's Mistake #1: One quarter is not a reasonable amount of time to judge an investment trend.
This is the most glaring example of bad thinking in the article. The fallacy is at the root of the article. It states that lesser-known stocks outperformed better-known stocks in the second quarter just completed. This quarter is the 38th quarter of the 1990s. The implication of this article on the front page of The New York Times, written by one of old-world journalism's bright lights, is that the results of the quarter just completed in some way disprove the lessons of the previous 37 quarters.
You have 37 days of sunshine in a row, and you're in Phoenix. It rains on the 38th day. The Phoenix paper runs a headline the next morning, "Weather Trends of the 1990s May Be Changing." The prominent writer states that experts now wonder whether sunshine is likely anymore, for the foreseeable future.
Morgenson uses the results of a single quarter to state, "Another favored strategy of individual investors has also begun to flag: buying so-called index funds that mirror the returns of the S&P 500. For the first time in five years, during the second quarter, millions of index fund investors found their returns lagging behind those of most money managers who buy and sell stocks to try to beat the market."
Oooooooooooo.
According to Morgenson, quoting "analysts": "If anything can jolt investors out of their complacency, this turnabout should." So we see that buy-and-hold investors are considered "complacent" people who need to be "jolted," just because they're not churning their own accounts and underperforming the market averages, as their high-fee managers generally have done over the past 5- and 10-year periods. (This is a fact not mentioned anywhere in the article.)
Making trendy judgments based only on the most recent of 38 quarters represents undisciplined thinking of the highest, or next-to-highest, order. Mature journalism from our nation's top paper, featuring one of our top journalists? It's embarrassing.
History will smile at us.
Gretchen's and the NYT's Mistake #2: Choosing the wrong headline.
We all know editors are always going to look for catchy headlines. Hey, I try it too. (Witness my headline.) Shooting for catchy headlines does not justify the use of misleading headlines, however. It isn't 'til half the article is complete that we hit what is probably the only significant statement in the article: "Of course, one quarter's trading action does not necessarily translate into a long-term trend."
In some abridged form, that should be the headline of the story, because it's the truest thing in the story. As the story is, everything else in it undercuts -- and thus, obscures -- that simple message.
Title it with the truth. They chose the wrong headline. (They did get me to read their article, though, eh?!)
Gretchen's and the NYT's Mistake #3: Being unwilling to take any stand.
In fact, it starts with that limp-wristed headline: "...May Be Weakening." I call this shadow journalism. Unwilling to step into the light, the writer hides in the shadows, cloaking her viewpoint in qualifying language. They MAY be weakening, eh? Really? May? Wow, do I buy The New York Times to have them tell me that?
Are they telling me anything?
Value-added journalism (as opposed to rote journalism) takes a stand: "... ARE Weakening," for example. State your viewpoint, lads.
Imagine if The Times did state this viewpoint flat-out: "Investing Strategies Golden in the 90s Are Weakening." Once they're forced to drop their qualifications, we see how silly the judgement is. "Lesser-known stocks outperformed better-known stocks for the second quarter of this year, and this means that time-tested investment strategies are losing their relevance." Again, no reasoning thinker would accept that following the first 37 quarters of the 1990s, the 38th and most recent quarter would have some lesson that disproves what has gone before.
State your viewpoint, lads.
Gretchen's and the NYT's Mistake #4: Not really saying anything whatsoever.
The more one reads the headline, the exposition, the figures, and the analysts' quotes (my favorite: "The brokerage firms used to exercise a little oversight; they wouldn't let something get completely crazy. Now, people are dealing completely on superstition and price action"), the more one begins to realize that nothing here is being said at all. Every few paragraphs, another possibility is considered. Maybe the golden strategies don't work. Maybe they do. Maybe they're just weakening. Maybe they're coming back.
I am hard-pressed to summarize this article in any single sentence that provides meaningful insight for the average investor. "Index funds are fallible." OK, sure, over a short-term period. "Brand-name growth companies can get whacked." Yup, as has been demonstrated at several points throughout this greatest of all investment decades.
Or, perhaps, "Fallacious investment journalism isn't worth your time."
Gretchen's and the NYT's Mistake #5: Buying into all the pre-existing cliches.
Do-it-yourself investors are myopic, we're told. Daytraders are driving up valuations. (There's no good argument, there -- if you can explain the logic on our Rule Breaker message board, please do. For my own part, I know that for every buyer there is a seller -- whether they're transacting every day, or once a year. Further, many daytraders have open short positions right next to their long positions. Etc.) There is also the requisite mention of these daytraders who "have left their jobs to play the market." As much as I hear about this supposedly highly influential group, I have yet to meet one in person.
That doesn't mean they don't exist. They do. But how significant are their assets, relative to the trillions managed by institutions -- those trillions of dollars that truly set valuation levels?
Oh, yeah. Also: "The cacophony from Internet investment chat." That's blamed, as well. This sentiment is a requirement of these articles. Glad to see that made it in. Back to the lack of discipline of individuals: "... investors will have to widen their horizons.... This will make stock-picking much more difficult, forcing them to do the sort of homework, like examining financial statements, that old-fashioned money managers have always performed." Those naughty investors who don't check financial statements, again... unlike their highly disciplined brokers, all of whom read those financial statements before hitting the phones to cold-call prospects.
If I'm using too much sarcasm, please forgive me and remember that sarcasm is the wit of Fools!
If you detect any agenda in the writer's work, that's your business. I won't go on record about it.
To what extent did Gretchen Morgenson or The New York Times lead any investors to make good, strong investment decisions in the 1990s? Dunno. Raise your hand, dear Fools. Anyway, here are some things they can do in the next decade -- the Aughts -- to serve their readers the way they deserve:
1. Teach.
2. Take a stand, sometimes.
3. If you're going to play up the august, established nature of your paper and your writers, draw off one of the true strengths of old age: wisdom. (That's wisdom with a small "w.") Good old-fashioned horse sense should lead your writers away from spurious short-term viewpoints and judgements toward viewpoints informed by history. We have a lot of history now that we can learn from. Use it.
4. Don't always quote Wall Street institutional types. If all your quote sources are people whose business is founded upon managing money (brokers, money management firms, mutual funds), realize what you're going to get. You're going to get a constant bias from people with a vested interest to keep the rest of us confused, scared, unconfident. The subtext of their message will always be, "You need us to manage your money." Realize that you are broadcasting that subtext, and it makes you look silly.
5. Question your own assumptions.
The BreakerPort rose 3.26% today, versus the S&P 500 up 0.19% and the Nasdaq up 0.99%.
Fool on.
-- David Gardner, July 28, 1999
