We live in a world of nearly infinite, nearly free information. That includes financial information, commentary, journalism, and forecasts. Among this clutter, it can be very hard to decide what deserves attention, what’s worthwhile, and what to believe.
Print, television, and Internet journalism thrives on readers and viewers. In a media landscape that is so crowded, being sensible, useful, and accurate is often boring. Boring is bad for traffic, and bad for revenue. Strong incentives exist to make content (including financial content) exciting and entertaining, rather than valuable.
Similarly, in a marketplace that offers thousands of mutual funds, ETFs, hedge funds, private equity funds, and asset managers competing for “share of balance sheet,” their most urgent competition is for your attention.
Boring doesn’t grab attention.
So, strong incentives exist for all the competitors for your balance sheet to tell you a compelling story. Acknowledging that the future is uncertain is boring. Forecasting near-term massive upside in a particular asset class or near-term macroeconomic doom with an unwarranted degree of certainty is much more entertaining.
Discounting information written for the primary purpose of grabbing attention can help you manage the behavioral tendencies we all have, and make better decisions about your financial planning (and related aspects of estate planning).
The investment return forecasts made in a piece of financial commentary are a “tell” you can use to filter out information created to grab attention.
How might we think reasonably about forecasting investment returns, so as to distinguish reasonable forecasts from unreasonable ones? continue reading