We all want unbiased money-making information about the stock market. But what if we can’t get it? Should we prefer unbiased information that doesn’t make us money? Or information that has an agenda but works?
Howard Kurtz, the Washington Post media critic and author of The Fortune Tellers, a new book about conflicts of interest in financial journalism, thinks what investors should prize, above all, is pristine – if essentially ignorant – input from journalists who don’t have a buck in the market themselves. You simply can’t trust those who put their money where their mouth is. Playing the market, he says, corrupts. And guess what: He’s talking about me.
Okay, I wish the financial universe were as simple as Howard would like it to be. I wish there were such perfect specimens of journalistic integrity, guys who never dirtied their hands with a trade but who understand exactly how stocks work and what moves equities, who know which source is telling the truth and which one is just hyping and promoting a crappy stock he or she has to unload. But there aren’t.
That’s what I was trying to tell Kurtz during the two years he hung around my office as part of his research for The Fortune Tellers. But I’m not sure he ever really understood what I was saying.
I first brushed up against Kurtz about six years ago when he wrote a front-page story in the Washington Post about how I had inflated my portfolio by writing a positive article about some small stocks I owned. I never sold the stocks into the strength the article created, but the piece triggered an SEC inquiry and pretty much destroyed seven months of my life as I fought to clear my name. (The disclosure statement had been dropped by the magazine I was writing for, but it was perfectly evident I owned the stocks.) I regretted the incident and vowed to disclose virtually everything I owned from then on.
Oddly enough, considering how we met, I actually like Kurtz. I thought he gave me a fair shake and at least listened to my side of the story. I stayed in touch with him, and when he asked me for help with The Fortune Tellers, I said sure. I figured I could break him of his institutional bias, the baggage that comes from being a traditional media reporter.
I guess I should regret letting Kurtz back into my life, because in his new book he portrays me as a hard-driving, manic, emotional wild man given to fighting with friends, enemies, and everybody else as I clamor for respect. And I would regret it, but for the fact that Kurtz got me exactly right. I am a hard-driving, manic, emotional wild man who fights with everybody and craves respect.
He got me exactly right, but he got everything else wrong. I wanted Kurtz to understand that the real conflicts, the ones that truly cost the public billions each year, come from what we call the “sellside,” the giant promotional machine that is America’s brokerage business. Somehow this “research” gets passed on to readers as impartial by reporters and editors who should know better. As I told Kurtz repeatedly, much of what passes for impartial research is really the result of strong-arming by corporate finance departments who need positive research to sell crummy deals – and hence to make huge bonuses for themselves and their firms.
Kurtz ignored me. The result may be a more readable book – hey, who wouldn’t prefer reading about flashy personalities who deliver the business news rather than the drab suit-and-tie folks who pump-and-dump losing equities on all of us? – but the man missed the deeper truth entirely.
The very people who are doing their best to tell what really happens on Wall Street are the ones who get hammered the hardest in The Fortune Tellers. There’s Mark Haines, the CNBC Squawk Box anchor, who I think has done more to keep business execs honest with his tough questioning than anyone else on TV. There’s CNBC’s David Faber, who, along with Joe Kernen, has led the way in exposing how Wall Street’s promotion machine often costs the public billions in lost investment dollars.
And yes, there’s me. I’ve spent my whole writing career trying to demystify Wall Street, trying to show how individuals can control their own finances and do much better than if they rely solely on Wall Street sources. I helped start TheStreet.com in the belief that individuals are entitled to the same information and analysis that the big boys get. And I write every day about what I am doing, right or wrong, so individuals can get the word right from my trading turret rather than from “unbiased” journalists who are dependent on money managers for their information, the same money managers who trade self-serving stock picks for publicity! This unholy partnership provides plenty of good copy, but it wreaks havoc with readers’ finances.
I come under the most scrutiny from Kurtz, who suggests throughout the book that what I do might be morally ambiguous at best, and, at worst, completely biased without any hope of making you money. That’s just dead wrong, and I resent it. I disclose all of my positions and frequently excoriate those who don’t. In Kurtz’s eyes, it is better for a reporter to help a source pump-and-dump some crummy stock through an unattributed quote than it is for me to say why I like a stock and am buying it! One has the “impartial” journalist as intermediary, the other just has you and me.
Oddly, there was a time when the media were indeed in the pocket of the bad guys. For a while in the eighties, the Wall Street Journal’s “Heard on the Street” column was sold in advance to a couple of brokers who were able to print money because they knew what tomorrow’s paper would say. And CNBC used to allow Dan Dorfman to run a show each day where money managers would bag stocks, gun them through Dorfman, and then blow them out to the unsuspecting public.
But those days of real, undisclosed conflicts have long since passed. And in some cases, I was one of the commentators who helped expose them. Too bad Kurtz missed an opportunity to do the same for our time. That would have made for a terrific book.
TheStreet.com
Monday’s new “10 Questions” feature will be a Q&A with Dave Santos, co-manager of the Putnam Technology fund. Don’t miss this tech specialist’s insights. Available for free at www.thestreet.com.
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer’s writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites comments at [email protected]