For a long time I wanted to write my views on Financial Media. This week I read a blog by one of the best fund managers in the world Howard Marks about ‘Expert Opinion’ & took inspiration from it to write this blog. I urge you to read the original blog from this link. https://www.oaktreecapital.com/insights/howard-marks-memos. It’s loaded with decades of wisdom. Here are a few quotes from the blog that stuck with me.

• Of course there are no “facts” regarding most future events, just opinions.  Experts – especially people who are paid to be experts – often couch their statements as facts, but that doesn’t mean they’re sure to come true. 

1. A lot of people’s lives would be more tranquil and more productive if they accepted that what the media says about an upcoming event – and whether you watch or not – won’t have any impact on the outcome.  

1. It’s the surprises no one can anticipate that would move markets most if they were to happen.  But (a) most people can’t imagine them and (b) most of the time they don’t happen.  That’s why they’re called surprises. (Demonetisation?)

1. And anyway, people tend to follow media outlets that confirm their beliefs rather than challenge them.

Since I started the advisory practice I have been reading a lot more to keep myself abreast with all that’s happening in the financial world. Over these years one of the startling revelation for me has been how the narratives about market kept changing & the extent to which the narrative changed. At times I was fooled into believing the narrative & made mistake of acting on it & later regretting it. Here are a few examples of such instances when narrative about certain event changed completely in a short span.

• Trump is a disaster for World economy narrative: Many of you might remember this popular narrative around the US elections. Here is what Paul Krugman wrote for NYT just after the elections. Markets had initially plunged after his victory. “If the question is when markets will recover, a first-pass answer is never. Under any circumstances, putting an irresponsible, ignorant man who takes his advice from all the wrong people in charge of the nation with the world’s most important economy would be very bad news. What makes it especially bad right now, however, is the fundamentally fragile state much of the world is still in, eight years after the great financial crisis.”. You can read it here.  Trumps victory was followed by nearly 100% rise in S&P 500 and massive tax cuts.
• 2011 was a bad year for markets, Nifty corrected 28% from Nov 2010 peak. Across the board the broking & research companies had downgraded Nifty target for 2012 and expected the fall in prices to continue. What happened next? Nifty went up 12.5% in Jan 2012 and exceeded the year end targets for all broking houses in January itself. It ended the year 27.7% higher. Check out this article which appeared in Mint.
• 2015 was one of the biggest commodity meltdown on record. The narrative was that Chinese economy won’t be able to make transition from infra spending/export oriented economy to being a consumption driven economy. It was popularly known as China hard landing. George Soros in a famous interview to Bloomberg said. “China’s economy is headed for hard landing that will worsen global deflationary pressures, drag down stocks and boost US govt bond. A hard landing is unavoidable”.  In march 2016, china came up with a time bound plan to close many of its capacities across industries.
• 2009: Nouriel Roubini who had predicted 2008 crash way back in 2006 and had high degree of credibility back then wrote this for Financial Times in Aug 2009: “There are two reasons why there is a rising risk of double-dip W-shaped recession. For a start, there are risk associated with exit strategies from massive monetary and fiscal easing. Another reason to fear a double dip recession is that oil, energy and food prices are now rising faster than economic fundamentals warrant and could be driven higher by excessive liquidity chasing assets and speculative demand. In summary, the recovery is likely to be anaemic and below trend in advanced economies and there is  a big risk of double dip recession.”  As things turned out Aug 2009 was just the beginning of the longest economic expansion in US history since 1851.
• “Sell Everything! 2016 will be cataclysmic year” Andrew Roberts RBS – here
• JP Morgan Chase CEO Jamie Dimon in Aug 2018 interview said their 10 year treasury bonds will hit 5%, “It’s a higher probability than most people think”. Markets crashed 20% in last quarter of 2018. Then 13 months later in Sept 2019 interview to the same news channel he said JP Morgan is preparing for risk of zero interest rates in the US.
• Post Brexit all across the global bond yields crashed. In July/Aug the narrative was all about trillions of dollars of bonds trading at negative yields & I distinctly remember the expectation was US Fed will not raise interest rates till 2018! Cut to Nov/Dec, all the discussion is about reflation, global growth, fiscal stimulus & 11 rate hike by US Fed over next 3 years! The 10 Year bond yields in US doubles from 1.37% almost 2.6%! This was the most startling change of narrative in such a short time I have ever come across. I wonder what really had changed in 4 months to change the narrative so much & what’s the guarantee it won’t change again?
• All of us can remember the prediction made by an economist of $100bn outflow if Brexit were to happen. With the benefit of hindsight we know Brexit, Grexit & state elections hardly mattered. If at all, the volatility due to these events gave us an opportunity to invest at lower prices.
• In Oct ’14 everyone was gung-ho about how lower oil prices will benefit Indian economy, 1 year later the narrative had changed to deflation, FII outflows & mark-to-market inventory losses for Commodity producers.

Here are somethings we need to remember

• Media sensationalises even trivial things. It doesn’t miss an opportunity to blow every event/news out of proportion & exaggerate its impact on our markets. I have highlighted in the past the most severe corrections happen because of ‘unknown unknowns’ & not something everyone is expecting might happen. Grexit, Brxit, Bihar Elections, Budget, etc. Last month I wrote a deliberate positive view on impact of demonetisation because I thought media was only talking about only one side of it.
• Every now & then media brings in the people like Udayan Mukherjee, Mark Faber, Jim Rogers, Saurabh Mukherjee & Shanker Sharma & hails them as the ‘Market Gurus”. The only core competence they have is dissing out sensational headlines. They seem cock-sure about everything as if they are writing the script of the financial world! If we check their track record in managing people’s money it’s awful. If we check how often the predictions made by these people came true, you would be astonished with the failure rate, if we were to check them for consistency of their advice you would be bemused at their fickleness. Yet media would hail them as Super star & invite them for interview every once in a while. Believe me your MF fund manager are the best in the business & most importantly they are accountable to you with their performance.
• Media has mastered the art of playing with people’s emotions. It feeds the Euphoria by churning out 50000 Sensex target when Sensex is at 30000 & it feeds the fear by churning out 20000 Sensex target when Nifty is at 23000! Ditto for sectors & stocks. I remember recently CLSA had Sell rating with target of 600 on Bharat Forge when the stock was trading at 750 & it suddenly raised the target to 1100 after the stock rallied to 950 within a month. I wonder what changed in a month for them to almost double the target on the stock. I keep saying this, things are never as good as it feels in a bull market & it’s never as bad as it feels in a bear market.
• Media stokes your ‘Action Bias’: ‘Market correction is far from over, experts feel Nifty likely to correct another 10%’”; “Sell in May, Go Away”, “ Buy these stocks before it’s too late!”, “If Nifty falls below Brexit day low…..”; “Book profits in Sugar stocks” “Top trading calls for the day”. Anyways who would watch TV if they were to give same boring advise everyday of ‘follow asset allocation & stay invested for long term’. They need to find reasons for you to sell something & buy something every now & then. They would make you believe you can time the markets easily & every time. Hindsight is always 20/20, but who know what will happen in 3 months or 3 weeks?
• People in media are champions at extrapolating the current trend. Not many see the turning points for markets, sectors or stocks. That’s why we get 50k Sensex targets at 30k & $15 Oil at $30.
• I  have read a lot of blogs/articles particularly in global media that work on fear-psychosis. The author will use past data to show you how in past when several variables came together & there was a recession after that & how things are just similar now & how we are in for a recession soon. In past 18 months I have seen dozens of reason why we are going to have recession in US or China. I learnt this the hard way last year.

I am not endorsing any view about markets or sectors here. All I want you to understand is that media is in the business of grabbing eye-balls. The expert in media disses out a general view. He doesn’t know your investment horizon, your risk appetite or your goals. We all know experts in media can change their opinion at the drop of a hat & are cock-sure of their opinion on both the occasions! We would be better off taking the advice in financial media with a pinch of salt.