Charlie Beckett asks: “Why didn’t the financial media tell us that capitalism was about to implode?”
Simples. We didn’t do so for the same reason we haven’t found a cure for cancer or solved Arsenal’s goalkeeping problem. It’s not our job. The point of financial journalism is to explain the present, not to make forecasts.
Indeed, the very act of making forecasts - as distinct from discussing risks - is to misreport the world. It gives the impression that the future is knowable, when in fact it isn’t*.
Nor is it the job of financial journalism to give advice. This is simply because, to a very large extent, the advice people need doesn’t change from day-to-day or even year-to-year. I reckon four general principles get people most of the way:
1. Live within your means. The safest way to get rich is to save. How you invest your savings - cash, shares, gold, whatever - is a secondary consideration, unless you are really silly.
2. Minimize taxes and charges. Most people can save tax-efficiently through ISAs and pensions, and should do so. Also, don’t be tempted by high-charging funds - they are usually not worth it. And if you hold shares directly, don’t trade much.
3. Remember that high prices, on average, mean low expected returns. Don’t jump on bandwagons.
4. Remember G.L.S Shackle’s words: “knowledge of the future is a contradiction in terms.” Don’t pretend you can see what’s coming. And don’t pay others in the belief that they can do so. The essential fact about the financial world is risk (and/or uncertainty). The key question is: what risks are you prepared to take, and which aren’t you? This paper by John Cochrane discusses this well.
Following these principles usually entails that people should do very little from day to day with their money. Apart from when I sold my London flat in 2008, I haven’t made a significant change to my personal finances for years, other than to add to my various savings.
This means that the job of financial journalists cannot be to tell people what to do with their money - because, mostly, that answer is generally the same.
Instead, our job is to find something interesting and true to say. And this is difficult enough, because in finance, a lot of what‘s true is not interesting and a lot of what‘s interesting is not true.
* No doubt you can find examples of me breaking this principle. Even I, though, sometimes have to make concessions to popular demand.
Simples. We didn’t do so for the same reason we haven’t found a cure for cancer or solved Arsenal’s goalkeeping problem. It’s not our job. The point of financial journalism is to explain the present, not to make forecasts.
Indeed, the very act of making forecasts - as distinct from discussing risks - is to misreport the world. It gives the impression that the future is knowable, when in fact it isn’t*.
Nor is it the job of financial journalism to give advice. This is simply because, to a very large extent, the advice people need doesn’t change from day-to-day or even year-to-year. I reckon four general principles get people most of the way:
1. Live within your means. The safest way to get rich is to save. How you invest your savings - cash, shares, gold, whatever - is a secondary consideration, unless you are really silly.
2. Minimize taxes and charges. Most people can save tax-efficiently through ISAs and pensions, and should do so. Also, don’t be tempted by high-charging funds - they are usually not worth it. And if you hold shares directly, don’t trade much.
3. Remember that high prices, on average, mean low expected returns. Don’t jump on bandwagons.
4. Remember G.L.S Shackle’s words: “knowledge of the future is a contradiction in terms.” Don’t pretend you can see what’s coming. And don’t pay others in the belief that they can do so. The essential fact about the financial world is risk (and/or uncertainty). The key question is: what risks are you prepared to take, and which aren’t you? This paper by John Cochrane discusses this well.
Following these principles usually entails that people should do very little from day to day with their money. Apart from when I sold my London flat in 2008, I haven’t made a significant change to my personal finances for years, other than to add to my various savings.
This means that the job of financial journalists cannot be to tell people what to do with their money - because, mostly, that answer is generally the same.
Instead, our job is to find something interesting and true to say. And this is difficult enough, because in finance, a lot of what‘s true is not interesting and a lot of what‘s interesting is not true.
* No doubt you can find examples of me breaking this principle. Even I, though, sometimes have to make concessions to popular demand.
"discussing risks" can include saying things like: "whoa, this looks dangerous" which is tantamount to giving a forecasts (in expectation, at least). Can't journalists say anything more concrete about risk than reporting historic volatility and discussing sources of risk in abstract?
The chief economics writer of a newspaper is not a personal finance adviser.
If we can expect academic economics to have understood the workings of finance and the macroeconomy well enough to be in a position to issue warnings, ought not the nation's newspapers be able to find some journalists who understand things equally well as academics (albeit with differing levels of technical ability)? Would you argue that it was also too much to ask of economists?
Posted by: Luis Enrique | September 20, 2010 at 06:29 PM
The answer to Arsenal's goalkeeper problem is to look at getting another (hopefully better) goalkeeper or working to make the one they have better. They are aware there's a weakness. They can discuss the possibilities.
In a similar way...
I suspect there were some who understood. I wonder what happened to them?
Posted by: Phil Ruse | September 20, 2010 at 07:32 PM
"if you hold shares directly, don’t trade much"
How do High Frequency Traders cope with Stamp Duty - doesn't that wipe out profit, or don't we have HFT in London ?
Posted by: Laban | September 20, 2010 at 08:16 PM
was the crisis inevitable? fractional reserve banking always relies on confidence, and if that disappears then at any time there can be a run. It's an unstable situation that can run away. Predicting it is next to impossible
Its like asking why the mechanic didn't tell you your car was about to break down, or your doctor didn't tell you you were about to become ill.
Posted by: Dipper | September 20, 2010 at 09:31 PM
did you say "minimise taxes"? In the words of the deputy PM, does that not make you immoral?
Posted by: donald | September 21, 2010 at 12:55 PM
Prognostication has a pretty gloomy history, but I was just reading a piece by Marc Faber in an old copy of Time magazine from 2007 (which, inexplicably, sits in the toilet at work).
He was predicting the economic crash based on what he saw as unwarranted global asset inflation.. people leveraging the supposed value of their assets to buy more assets... thus fuelling the growth in asset prices (of all kinds).
The trouble is that in that very same issue, another equal-but-opposite expert was painting very much the reverse picture.
So it's not the media didn't make predictions, just that the media make so damn many of the things that someone, somewhere is eventually proved right.
I've given up listening, frankly.
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