God, Baruch hates that sodding Lex column. The serene superiority of the tone, and the sheer uselessness of the contents, make for a mind-numbingly stupid combination. I’ve written before of my contempt for the Economist’s stopped-clock investment style, but at least they take a view. You know that whenever there is a sunny outlook for the economy and markets (which is most of the time) they will foretell doom; that is, up until something really horrible is going to happen, in which case they’ll suddenly cheer up and tell you to fill your boots.
Now the Economist will lose you money most of the time, but there is the chance that in a short-term correction in a wider bull market, or for a few months before the crash, you might make some. Even a stopped clock, as they say, is right twice a day (using the 24-hour format, as I fear the Economist does, only once of course). Reading Lex is enough to make sure you never make money, or lose any, because you’ll be too confused about what you should actually be doing to invest in anything.
This is a shame, because I think people actually read the column in the hope that it may help them give them context outside the “on the one hand, on the other” conventions of simple reporting and somehow let them know what it is they should be doing. The typical reader would be financially literate enough to suspect that most investment research, by the time it hits the retail punter, is hopelessly biased. They don’t want to be Blodgeted. They want to know what the smart money would be up to, and maybe they follow it themselves. Lex knows this, and the personal finance angle is exactly how they present themselves; from the “About” section of the website:
In its early days, there were no financial analysts, so Lex filled a need for critical and acerbic analysis of company results and strategies. Today, with analysts’ independence under question from all sides, it still provides an impartial and unconflicted commentary.
Baruch considers himself the smartest of smart money in the narrow niche he has chosen for himself. He generally knows the biases of the sources he uses. He’s surer than most about the things he doesn’t know. As such he rarely reads the Lex, nor its poorer cousin, Breaking Views. He did the other day, out of pure curiosity, as it concerned a question he had been wrestling with in his team: what to do about Apple (AAPL) ramping in front of the iPhone launch? Is the hype appropriate? We’re exposed either way, long or unowned due to the magic of benchmarking. We’re currently making the underweight bet, hoping that something minor will derail the launch, or, more likely we’ll get a “sell the news” reaction. Also, frankly, we have so many other ideas we need to devote our scarce capital to, we haven’t really been able to find enough to sell. Anyway, that’s our bias. What did Lex have to say?
Don’t bother clicking through. It’s behind a firewall and I don’t recommend you pay up. It’s from the 29th of June 2007 in case you care. I’ll summarize it for you. After pointing out the success of the iPhone marketing campaign, the column concentrates on the risks to takeup: previously wholly in charge of its own destiny, and generally used to being in charge of its own fate, now AAPL is dependent on the mighty AT&T, some of whose evident faults (e.g. slow puny EDGE network) may rub off on AAPL; the handset market is also “seriously competitive” already. This is the content of the first 3 paragraphs of the piece.
Spot on, informative, a masterful summary of the risks. This iPhone seems a pretty bad idea all round. Baruch knows 2 past contributors to the column personally. Both are frighteningly intelligent, and he would be disappointed if they or their successors could not summarize a brief properly. Lex has access to sell side analysts, all of whom are desperate to get their views into the mainstream, and as a result Lex can get the skinny on just about everything. Now for the real question, the most burning question of the day in technology investing; readers may own AAPL, or be thinking of buying it, and need guidance: when it comes to AAPL stock, on the verge of the launch of one of their most important product launches ever, what does Lex think we should actually do? Buy, sell, or do nothing?
Apple clearly has the chance to build a lucrative third leg to its business, even if it gets only a tiny share of the massive handset market. The iPhone has broken new ground on design. The iTunes link will lure existing iPod users. It should fly off the shelves initially. But investors, who have already bid Apple’s shares up 40 per cent since the hype started, should not assume that they are guaranteed a rerun of the iPod’s huge success.
Err, what? The first bit sounds great! Lucrative legs off tiny share, and new design ground! Fly off the shelves! Forget the risks, Buy!! But, wait; I should not assume what? I’m not guaranteed a success? What does that mean?!? Sell?
What it means, dear schmuck reader of Lex, is that no matter what happens, Lex comes out looking good, and you are none the wiser. Shares go up, you complain to the comments page, hey you told me it was all risky, I shouldn’t invest. Oh no, the moderator will say, it’s clearly positive, look at the lucrative legs. Shares go down, hey, we told you it was risky, you aren’t guaranteed a success. Caveat Emptor, and anyway we don’t give advice, merely commentary.
Let’s face it, Lex is caveat everything. The real enemy of the people who write the column is not the unscrupulous shyster Blodget analyst, it is the taking of any risk, even informed ones. Look at the 3 paragraphs in a 4 paragraph column they use to explain just how risky a project the iPhone is, whereas in reality it is likely one of the best things to happen to the handset industry in years and will probably make AAPL a crapload of money (but the question for the stock is how much, a full crapload or just a shitload). These people are journalists. They gave up on a life of doing in order to write about others that do, to stand on the sidelines passing “informed commentary”. They need to know that this is the right thing to have done, despite the evidence of their wealthier university friends who decided to be doers, and naturally wish others to follow in their footsteps. They are terrified of being wrong, because their whole function in life is to appear smart; if they fail at this in one thing (buy AAPL and it goes down), they fear it infects their credibility on everything else. They do not grasp how cheap talk is; they believe that they are adding value, but they do not. Instead they unintentionally (if elegantly) add to the fog of confusion the average punter lives in by offering the illusion of making them informed. In reality all they get is prevaricational fence sitting and arse covering. All the Lex(es) I’ve ever read are the same.
The world according to Lex consists of the greedy, the mendacious, the foolish, the credulous, and the journalists writing Lex. The enlightened risk-taker only exists after the fact. There is no project, long or short deemed safe enough to invest in, to get the Lex column seal of approval (“success is not guaranteed”). There is no question that can be satisfactorily answered without asking a bunch of other ones or without waiting until the upside of getting an answer has disappeared (“only time will tell”). Backtesting Lex’s recommendations would be impossible; as far as Baruch knows, they have never made any.
The column is useless. It is a waste of time. It is why I imagine Lex and Breaking Views will die away, eventually, and be replaced by people like, it pains Baruch to say, Jim Cramer, who, as ridiculous as he seems on TV (I cringe at every booyah) actually tries to suggest to people what to do, which risks are worth taking. He gets people in the markets, and once they are there they are open to all the good things (and bad things) the markets have to offer. Cramer doesn’t mind looking stupid — or rather, he does, but knows and trusts he will get more things right than wrong. It is a self-confidence wholly lacking in Lex, which seems to suffer from an immaculateness so overwhelming that, if it were adopted by everyone, nothing whatsoever would ever be accomplished.