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Home  »  Managing The Market • Transparency   »   Talking Heads

Talking Heads

By Preston McSwain, January 26, 2016

The theme of this blog is based on the Talking Heads album, Speaking In Tongues, and its hit single Burning Down The House.

What drove my fingers to start typing was the following headline that just arrived in my email inbox:

“Fed Could Trigger 40% Equity Correction”

The quote from a well-known Chief Investment Officer likely created a lot of clicks and, as probably designed, served as a call to action.

I’m not commenting on whether the forecast will come to pass. I don’t have crystal ball, but I certainly hope it does not.

Similar to what we wrote in our last piece, Your Brain On The Market, all I’m suggesting is that headlines like this from Wall Street talking heads don’t tend to help investors make constructive decisions. Often, they only create unneeded emotion and fuel behavior that harms long-term returns.

As we have written about many times before, unfortunately, at the very least prognostications like this tend to be inaccurate.

At worst, they may be self serving.

How?

When I was a Managing Director at a large asset management firm, I sat in on media training with our senior portfolio managers (PMs). What was the most important message PMs were told to reinforce in interviews?

“While in front of the camera, be sure to use the opportunity to talk up positions that you just bought to get the herd interested in buying them.”

PMs were also told to talk down positions that they did not hold, which were part of their index or were large holdings of their competitors. I actually witnessed portfolio management teams watch CNBC interviews and then cheer as they saw large numbers of buy or sell trades come across the ticker based on their colleagues’ comments.

Consider the following true stories:

The Honest Global Chief Investment Officer

Once while having a private dinner with a Global Chief Investment Officer, I asked why the first few sections of his team’s glossy monthly advice and commentary publication were becoming more and more short-term trade and active manager oriented, especially based on the fact he had previously told me most of his personal money was in index funds.

After a little wine, he admitted that most of the pieces would likely not add value and that some were quite risky.

He then said this:

“Keep in mind that I get paid to publish ideas that we can sell for a profit. If I don’t, the brokers and management complain. I then could lose my job.”

“I learned a long time ago that it pays to feed the Street.”

The Honest Global Head of Asset Management

In the process of trying to get good insight into a competitor’s fund portfolio for a prospect presentation, I had a meeting with the ex-head of Global Asset Management for the firm that had created the funds I was analyzing. Perfect, I thought, he led the group that created all of the products. After I gave him a brief overview, he smiled and said,

“You’re thinking too much. You are correct, the performance of the portfolios has been bad. We had a great brand though, an even better Ivy League MBA sales team, and we knew it.”

“We looked at products one way.”

“If we could sell it, it was good.”

In relaying these stories, I’m not suggesting that these professionals were doing anything improper. As I titled the sections, they were just being honest.

Many good professionals exist on Wall Street, who work hard in an earnest manner, striving to add value to client portfolios. It is just wise to remember that, like any other business, the investment business is in the business of selling products and services for an attractive margin.

Bottom-line… 

Stay focused on your investment plan, not the forecasts of others.

Don’t let your brain get fried by market commentators or marketing presentations.

Market headlines fueled by the sensational quotes of talking heads can burn down your investment portfolio.


Related Reading:

Falliable Forecasts

It’s All Greek to Me

Should We Be Tactical?

The Simple Alternative

Preston McSwain
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