Sorting Through Online Investment Noise

Hey, investment cranks: The Internet never forgets
By Barry Ritholtz
Washington Post, August 1, 2015



As Theodore Sturgeon famously observed, 90 percent of science fiction is crap, but then again 90 percent of everything is crap.

In the world of online investment opinions, Sturgeon was an optimist.

Not all that long ago, the perspectives of individual amateur investors and professional ones, too, were for the most part unknown. Most market participants had no way to share their views about individual companies, interest rates, the economy, Federal Reserve policy or much of anything else. They owned whatever investments they owned, stocks and interest rates went up and down, and that was the end of it.

Their views were of course, reflected in the trading of what they bought or sold. Price was the final arbiter of any debate. It is still thus, now as it was then, that price settles all debates over the long run.

But in the short term, not so much. When it comes to investing, the Internet has created a huge assembly of commentary of dubious value. There is gold among the dross, but for the most part it is a cacophony of cranks and gurus. I choose guru to pay homage to Peter Drucker, who observed: “We use the word ‘guru’ because ‘charlatan’ is too long to fit into a headline.”

Today, any idiot with an ETrade account has instant access to a megaphone to broadcast his own imbecility. Amusing as so much of this nonsense is, to the uninitiated or easily influenced, it is potentially dangerous.

It wasn’t always this way. A few decades ago, a handful of media outlets covered investing. They had the power to quote analysts, to drive the agenda and to anoint stars: few well-known monthlies; Barron’s on the weekend; and, of course, the Wall Street Journal. Sure, the world was just as full of money-losing cranks and conspiracy-minded crazies. You just didn’t have access to the full flower of their lunacy.

You can trace precisely when the gatekeepers — mainstream media, Wall Street and the government — began to lose control to the mid-1990s. That was when the Yahoo Stock Message Boards launched and quickly found an audience. At the time, such stocks as Iomega, Boston Chicken, C-Cube Microsystems or Galoob Toys were not exactly media or Wall Street darlings. Instead they found expression among the unwashed masses. Driven in large part by the message board community, some companies had epic runs. Iomega was one, and the boards helping drive the stock to a $6 billion valuation in 1998, before it ultimately collapsed. (It was bought by EMC for $213 million in June 2008.)

Those days seem quaint.

The message boards made it clear there was an appetite for a more diverse set of ideas and opinions. Truth be told, the media had not done an especially good job of informing the public of the nuances of markets and investing. That failure made them ripe for disruption. Blogs provide just that, a digital assault on the gatekeepers.

Next came a slew of social-media entities — Facebook, Twitter, LinkedIn — providing an ever-larger platform for ever more diverse (and ever less rational) opinions. But as Sturgeon’s revelation accurately observes, if “ninety percent of everything is crap,” then so too is the never-ending stream of poorly reasoned comments on investing, in 140 characters or less.

There is a silver lining to all this: One of the most wonderful things about the Internet is its own self-correcting mechanism. Anyone can make outrageous statements. This might generate media coverage, raise an analyst’s profile or create buzz to attract new clients. However, those ridiculous forecasts do not simply fade away; they live forever on Google’s servers.

You see, the Internet never forgets.

I was reminded of this simple, delightful fact by two recent commentaries. The first, by Michael Johnston, is “A Visual History of Market Crash Predictions.” Johnston, a senior analyst for Fund Reference, a publishing shop in Chicago, calls to account most of the highest profile crash predictors of the past six years. The second is Larry Swedroe, who does the same for the goldbugs in “Gold: Is It Really Likely to Hit $5,000 an Ounce?” Swedroe is director of research for the BAM Alliance, and his column was published at

Johnston begins by pointing out how the 2008-2009 financial meltdown “empowered the perma-bears who make a living scaring investors into sub-optimal asset allocation strategies.” This gloomy group “has spent the better part of the decade terrorizing gullible and risk-averse investors with more recession predictions.”

How has the group done? In a word, terrible.

He names names and forecast dates in a list that is amusing and awful. Consider Charles Nenner, forecasting Dow 5000 on July 15, 2010; Harry Dent, calling for Dow 3000 in late 2011; Terry Burnham, Dow 5000, July 2013. Mark Faber has called for a 1987-like crash every year since 2010. The list for crash callers goes on and on. Not only has the market not crashed, but also it has rallied some 200 percent over the full course of these forecasts.

Swedroe took a different approach: He looked at the many predictions of a forecaster — Peter Schiff of Euro Pacific Capital — and found them wanting. Swedroe noted that “In 2008, [Schiff] predicted that gold would hit $2,000 by 2009 and $5,000 by 2013.” He has repeated the $5,000 per ounce call numerous times since.

Swedroe points out that Schiff has made other predictions. In addition to being wildly wrong about gold, Swedroe notes Schiff missed the mark on: hyperinflation, the U.S. dollar, other commodities, most foreign currencies, foreign equities, China, U.S. Treasuries, economic decoupling and interest rates (both foreign and domestic).

Aside from that, Mrs. Lincoln, how was the play?

Note that we should not expect people to be infallible; indeed, each year, I publish my own mea culpa column. But I prefer errors to be of the honest kind and not a nonsensical form of self-promotion. As we have noted previously, forecasts and predictions are simply an aggressive, destructive form of marketing.

Like so much else in the world, the overwhelming majority of investment-related online opinion is junk. Intelligent investors understand that. They know that other people have agendas, biases and cognitive issues that make their perspective less valuable or relevant. Those who must learn this the hard way will find that education to be very expensive indeed.



Ritholtz is chief executive of Ritholtz Wealth Management. He is the author of “Bailout Nation” and runs a finance blog, The Big Picture. On Twitter:@Ritholtz.

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  1. A commented on Aug 8

    What is so sad, is that today’s ‘investors’ find Warren Buffet boring and Jim Cramer exciting.

  2. KDawg commented on Aug 9

    “How has the group done? In a word, terrible.”

    It’s more accurate to say that the investors that listened to this group did terrible. The group itself probably pulled in tons of fees.

    It’s a good business model as there are gloom and doomers that will never ever be convinced that anything good can happen. Is it immoral to take their money? They are going to lose it one way or another. It’s better for society that they lose it on bad investments than a stockpile of guns and ammo.

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