This is truly great stuff…
We have talked a ton about this here, reducing the “noise” you are subjected to. For myself, it is a rare day I watch any of the financial networks and when I do it virtually always is Bloomberg as the tone is more conversational vs confrontational screaming. Their interviews also tend to be longer than 45 second giving those on the show the ability to provide a coherent thought process rather than spewing talking points at full volume.
This is the beauty of the twitter/stocktwits combination. It is an instant filter that allows each of us to eliminate as much or as little noise as we want and receive that which interests us or is in our area of focus. The rest never reaches us. It gives us the best of the TV in that we get instant news and information and eliminates the worst, the lemming investing mentality Hussman speaks to below.
In a strange way it actually encourages more independent thought in that I follow people I respect for a wide variety of reasons. When they post something of interest, I investigate it more. If it contradicts what I think, I pay it more attention because I am familiar with them. Contrast this to the TV in which we know very little about most folks on there so contradictory thoughts can be easily dismissed with a “he is a dip shit” comment. The people I follow IMO aren’t so I do pay attention when they think differently than me. This causes me to dig deeper to either confirm or alter my thoughts on a subject.
I can also get a question answered on a subject usually in less than 5 minutes, no matter how arcane.
For reasons those alone the stocktwits medium is invaluable.
From Hussman:
I’ve thought about this a great deal, and I suspect that just as the experience of patients is determined by the quality of information they get from their doctors, the behavior of investors is likely to be only as sound as the quality of the discourse and advice they receive from investment professionals. In reflecting on why the past 15 years have been so riddled by irresponsible speculation, it is impossible to ignore the rise over that same period of widely-viewed financial programming that is equally riddled with cartoonish content that encourages short-term thinking and speculation (buy-buy-buy! sell-sell-sell! boo-yah!). When we observe a clear change in the quality of analysis on the financial news, and the departure of its more speculative elements, I suspect we’ll also see greater emphasis on fundamentals and better allocation of capital, while speculation will be less effective in the face of overvaluation.
During the late-1990’s bubble, it struck me that the discourse on CNBC was remarkably similar to the sort of discourse that I had read from news archives preceding the 1929 crash. As I wrote at the time, what was surprising was the extent to which investment professionals, who ought to have known better, were fully endorsing valuations that were clearly inconsistent (at the time, and certainly in hindsight) with prospective cash flows – even if one assumed that economic activity, earnings, and dividends would achieve and sustain the highest growth rates ever observed in history.
Many investment professionals have developed a habit of forming expectations based on nothing more than extrapolation of short-term trends in the data, even when those extrapolations are inconsistent with market history or well-established economic relationships. This was a key element in creating the housing bubble – no price was too high and no bubble was recognized, because all that mattered was that prices were rising. The focus of analysts on the short-term ups and downs of economic and earnings reports has become such a mainstay of financial news that it’s not at all clear to me that investors even recognize how devoid the current financial discourse is of real analysis.
To analyze a company or the market, you have to think carefully about the long-term stream of cash flows that investors actually stand to receive, and how they should be discounted to arrive at an appropriate price. Instead, the only question today is whether earnings and economic reports are delivering “surprises” versus what “the Street” estimated the day before the data was released. The quality of earnings, the cyclicality of profit margins, dilution from option and stock grants, the implied total return reflected in the stock price, the return on retained earnings, cost of entry, competitive structure, market saturation, the potential for organic growth from reinvested capital – all of those things matter over the long run. But to watch a half hour of CNBC today is like watching an old episode of Gomer Pyle (“Well, surprise, surprise, surprise!”).
As Benjamin Graham and David Dodd wrote following the Great Depression (Security Analysis, 1934),
“The ‘new-era’ doctrine – that ‘good’ stocks (or ‘blue chips’) were sound investments regardless of how high the price paid for them — was at bottom only a means for rationalizing under the title of ‘investment’ the well-nigh universal capitulation to the gambling fever… Why did the investing public turn its attention from dividends, from asset values, and from earnings, to transfer it almost exclusively to the earnings trend? The answer was, first, that the records of the past were proving an undependable guide to investment; and secondly, that the rewards offered by the future had become irresistibly alluring … The notion that the desirability of a common stock was entirely independent of its prices seems incredibly absurd. Yet the new-era theory led directly to this thesis.”.