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We have two classes of forecasters: Those who don't know--and those who don't know they don't know.

John Kenneth Galbraith

The internet and social media have many great uses, but they also have some negative implications. The ability for nearly anyone to say or post virtually anything publicly can be problematic for many reasons. For the investment world, the internet allows people to interact and comment about their opinions, which can cause others to act, whether or not it makes sense. For investors it can be difficult to sort out important information from noise, or useless information.The terms "investment pornography" and "financial pornography" began getting more frequent use with the rise of the internet and the spread of on-line financial journalism, as well as investment related bulletin boards.

In a November 2019 interview, Barry Ritholtz asked Eugene Fama "Why does anyone read Wall Street Research?” Fama responded “I don’t know. It’s business-based pornography basically … it’s not the real thing.”¹ It’s not clear who first used the terms,² but both Rex Sinquefield at Dimensional Fund Advisors and columnist Jane Bryant Quinn have been using the terms for decades. They were followed by other journalists and professionals that also started using the terms.

Jane Bryant Quinn offered a number of explanations for the term in various articles in Newsweek, (for instance in "The Big Tease" on August 7, 1995) and other media

You know the stories: The Top Ten Mutual Funds to Buy Now, How to Double Your Money This Year, personality profiles that read like fan magazines. Stock-touting pieces that praise any path to profits. We've all done these stories, in one form or another. It's investment pornography -- soft core, not hard core, but pornography all the same.

Jane Bryant Quinn, “When Business Writing Becomes Soft Porn,” Columbia Journalism Review (March/April 1998)

When asked about the term in an August 1998 interview with abcnews.com titled "Good Investing Isn't Sexy," Quinn responded with the following.

I was getting at the newspapers and magazines that make investing sound easy. "Three ways to double your money." "Ten hot stocks." The articles that make it sound like the journalist knows the right stocks or mutual funds to buy. And the fact is we don't know. Journalists don't have any business pretending they're investment analysts. We can talk about stocks, investment ideas and what people are saying. But journalists shouldn't say that certain stocks will increase in value. Nobody knows. Soft-core though, the Net is hard-core.

Columnist Humberto Cruz suggested ignoring "any headline with the words hot, safe, today or now in it or any variation thereof, such as hottest or safely" and offered a summary in “Financial pornography preys on unwary investors” in the Sun Sentinel (October 7, 1996), along with the following.

I call it financial pornography. It titillates and excites but gives no lasting pleasure. Succumb to it, and it could actually be hazardous to your financial health. I am talking about all those alluring cover headlines from financial magazines, all the "hot tips" from the supposedly market experts dispensing their eagerly sought but often contradictory advice all day long on cable TV. Not to mention the thinly disguised infomercial in which some financial planner buys air time from a radio or television station, then spends half the show asking listeners and viewers to call his office for an appointment.

In his book Investment Strategies for the 21st Century, Frank Armstrong presented an opinionated discussion of financial pornography along with a small collection of financial pornography clips from Weston Wellington's collection (at Dimensional Fund Advisors).

America is, after all, notoriously tolerant of crackpots. But an examination of the rest of the popular financial media turns up little else of value, little intelligent life at all. In fact, most of what the popular financial media puts out could properly be called financial pornography! It's not only bad for your wealth, it has no redeeming social value.

So what is investment pornography? There is no precise definition and some people disagree on what exactly qualifies as investment pornography, but let's start with one of Webster's definitions.

Pornography: The depiction of acts in a sensational manner so as to arouse a quick intense emotional reaction.

I made a few small modifications to Webster's definition of pornography in offering the following loose definition on my site investorhome.com in 1999.

Investment pornography: The depiction of investment and/or financial information in a sensational manner so as to titillate or arouse a quick, intense emotional reaction.

Fortune Magazine provided the answer to the question of why we see so much investment pornography in an article on April 26, 1999. In “Confessions of a Former Mutual Funds Reporter” the "Anonymous FORTUNE Writer” acknowledged that "we [Fortune] were preaching buy-and-hold marriage while implicitly endorsing hot-fund promiscuity." Why would Fortune do that? According to the article, "Unfortunately, rational, pro-index-fund stories don't sell magazines, cause hits on Websites, or boost Nielsen ratings." Would you believe the lead article and headline splashed in bold letters across the cover of Fortune's next issue on May 10, 1999 was "Addicted to Sex"? You have to at least give Fortune credit for running the confession and admitting why they were doing it. The reality is, we can expect the investment pornography to keep coming as long as investors keep reading it.

More recently Walter Updegrave wrote “4 Signs You May Be Addicted to ‘Financial Porn’” in Time Magazine (May 27, 2015).³ “Financial porn,” or money advice that teases and titillates more than it informs, is ubiquitous these days, promising everything from safe returns with no risk to all-gain-no-pain paths to financial success. All of which would be harmless enough, except it can create false expectations and lead to poor financial decisions. Here are four signs that you may be at risk.

1. You're a sucker for double-your-money schemes.
2. You like to follow the "smart money.”
3. You're a seeker of "secret" solutions.
4. You love hearing about new and novel investments.

In the first few years I put up my web site in the 1990s, one of the web pages that used to get hundreds of daily visits was a page not listed in the table of contents.⁴ It was linked from my web page about financial pornography, with this text "Do you want to see a Beautiful Naked Blonde Chick?" This was my early version of what is typically called clickbait, something I otherwise tend to try to avoid. The page had a picture of a cute yellow chick (as in chicken). Some people just can't seem to resist clicking on text of that sort. Users of my sites have sent in plenty of questions and comments over the decades, but no one to date has emailed me about my cute naked chick page.

There is an obvious incentive for many in the media and online to create as much traffic and attention as possible. Generally, the more hits on an article or blog, the higher the advertising revenue. Plus, in the financial world, attention is often sought out because it can be helpful for marketing. So-called investment gurus will often seek out attention because it increases the likelihood that they will get customers, or it will help their business.

Dan Lyons noted in a 2014 blog post that some organizations don’t share traffic metrics with their authors due to fear of creating the wrong incentives. He cited Jason Pontin (publisher of MIT Technology Review) who made the following comment. ”The unintended consequence of showing them traffic, and encouraging them to work to grow total audience, is that they became traffic whores. Whereas I really wanted them to focus on insight, storytelling, and scoops: quality.”⁵

I was never drawn to the advertising model, so I have historically not taken banner ads on my websites, partially because I was more interested in providing quality information than in trying to generate traffic to make advertising revenue. I always felt the amount of advertising revenue per day would be so small that it wasn’t worth it. But perhaps the revenue wouldn’t have been so insignificant given that my web sites have had millions of page views. I also originally didn’t like slowing down my websites while ads loaded, but in late 2019 I decided to start experimenting with banner ads since speed isn’t much of an issue these days and many individuals I respect take ads (and point out that they allow a provider to offer content that they wouldn’t otherwise provide for free).

Bulls and Bears

One of the reasons I like to collect bullish and bearish predictions is to show people that there are almost always people on both sides of the fence. For many years I collected predictions and links, but I stopped updating them on a dedicated web page about a decade ago partially because others were tracking guru performance continuously.⁶ I moved many of the public predictions to the bottom of the investorhome.com home page instead (where I still have them) so that those that use my website can see the long list of bullish and bearish predictions over several decades.

There have been multiple predictions of the Dow Jones Industrial Average reaching 100,000 or more (which logically it will do someday), but there have also been many predictions in the last decade of the stock market crashing and losing a majority of its value. People with a “glass is half empty” perspective will almost always be able to find pessimistic gurus making predictions that support their bearishness. Likewise, people with a “glass is half full” perspective will almost always be able to find optimistic gurus making predictions that support their bullishness. While consensus opinions among investors, advisors, and newsletter writers can swing to extremes (which some would argue is a contrary indicator), it happens relatively infrequently.

Remember the First Law of Economics: For every economist, there is an equal and opposite economist--so for every bullish economist, there is a bearish one. The Second Law of Economics: They are both likely to be wrong.

William Sherden, The Fortune Sellers: The Big Business of Selling and Buying Predictions

If markets are "efficient" and the information and arguments used by both the pessimists and optimists is publicly available and widely known, current price levels fully reflect the balance between the bullish and bearish views. Market timing tends to be counterproductive because investments historically rise over time and attempts to avoid drops are just as likely to be unsuccessful as they are to be successful. Yet stress, or fear of losing money, can be a logical reason to be in cash and avoid investments that fluctuate over time. If your portfolio is too risky for you, and you can't sleep at night, it may be a good idea to reduce risky assets down to the sleeping point.

J.P. Morgan was quoted over 100 years ago for stating that "Any man who is a bear on the future of this country will go broke." Yet in the global financial crisis a large number of individuals not only didn't go broke, they made huge returns betting against the mortgage and stock markets (at least in the short-term). There are also plenty of people that have made a lot of money selling newsletters, books, or services that make bearish forecasts.

In the aftermath of the global financial crisis, there seemed to be a larger than usual number of doomsday predictions. I decided to start collecting extremely pessimistic predictions and although some at times seemed to have some merit, most of the predictions haven’t occurred to date.

One of the financial doomsday scenarios that got plenty of attention was from a 60 Minutes segment that aired on December 19, 2010. It included comments by Meredith Whitney and others discussing problems with state and municipal budgets. A month later on CNBC Whitney defended her muni call (January 12, 2011) and "she took the forecast a step further and said when the defaults begin in earnest, it will mark an exodus from the muni bond market."

Whitney was previously thrust into the limelight after her October 31, 2007 downgrade of Citigroup and her analysis that Citigroup would cut its dividend (which was one of the many ominous events as the global financial crisis evolved). Whitney played a prominent role in Michael Lewis' bestseller The Big Short. Although, according to the WSJ article on April 9, 2009, “When Meredith Whitney Calls, Should You Listen?” other analysts downgraded Citi ahead of Whitney's call and while she gets credit for the Citigroup call, she didn't predict many of the other major dominoes during the crisis.

After her 60 Minutes segment ran there were many discussions on both sides of the argument with many well-known investment personalities, but the main argument that the municipal bond market in general was in deep trouble, did not play out (to date). Other doomsday scenarios have been suggested, including some that have argued the next crisis will include a collapse of the dollar.

FORECASTING, n. The attempt to predict the unknowable by measuring the irrelevant.

Jason Zweig, The Devils Financial Dictionary

Is the stock market over or undervalued? Was there a bubble in bonds? Is the dollar going to collapse? Although markets aren't always completely efficient, I generally trust them to get it right most of the time and in the long run. No one wants to be in an asset class when the herd is rushing for the exit. But the herd (and individual investors) tends to have poor timing (as summarized in Chapter 11) and crisis tends to create opportunities for investors.

Another perspective came from Stocks for the Long Run author Jeremy Siegel, who discussed what he worried about in his February 2011 Kiplinger’s column, titled “What Keeps Me Awake.”⁷ He included a laundry list of concerns including state and local-government debt, the impact of the crisis in Europe, the threat of a terrorist attack, and he wrote that in “the long run, Medicare is the huge budget buster.” But he concluded "The U.S. has faced many crises that have disturbed the sleep of numerous investors. Yet we've always surmounted them and rewarded those who stuck with stocks. I see no reason the future should be any different."

As much as we’d like to believe otherwise, there’s only one person who can tell us where the economy and the market are going, and none of us gets to speak to him (or her), at least while we are alive.

Larry Swedroe, “Lessons from 2010: Diversification Matters and Forecasters Don’t”⁸

That would be me taking a selfie with the Wall Street Bull last summer.
The Bears on the right we saw in Yellowstone in 2013.

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Notes - The Footnotes in the Book are sequential and for this chapter start at #481 and end at #488.

1. The video can be watched at https://twitter.com/i/broadcasts/1vOGwaYnyOvxB and the transcript is at https://ritholtz.com/2019/11/transcript-fama-booth/
2. The website http://www.logophilialimited.com/index.php?word=investment-pornography cites Jim McTague, “Financial Pornography,” Barron’s, December 12, 1994 “The use of ads on cable TV is an “alarming wrinkle” because many people believe whatever they see on the tube, Feigen says. He called such commercials “investment pornography,” and says television and radio stations ought to be doing a better job of keeping them off the air.”
3. http://time.com/money/3896074/retirement-investment-financial-porn/
4. http://www.investorhome.com/chick.htm
5. Dan Lyons, “A Lot of Top Journalists Don't Look at Traffic Numbers. Here's Why.” March 27, 2014 http://blog.hubspot.com/opinion/journalists-dont-look-at-traffic-numbers
6. For instance, see investor sentiment at AAII https://www.aaii.com/sentimentsurvey and an example of a strategy tracker is https://allocatesmartly.com/list-of-strategies/
7. http://www.kiplinger.com/columns/goinglong/archives/what-keeps-me-awake.html
8. https://www.cbsnews.com/news/lessons-from-2010-diversification-matters-and-forecasters-dont/ (1/11/2011)

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