How to generate a return on your reading time
[6 minute read]
I’ve been reading and writing about finance for nearly 20 years. Most financial news is worse than useless, because it wastes your precious time telling you things that don’t matter. But there’s some really great stuff out there! Here are six rules of thumb that have helped me find the best and avoid the worst.
#1. Does this save me time or make me money?
The ultimate goal of financial writing is to consistently make your readers money. It’s also the highest bar to clear. One lazy observation you hear is that anyone who could consistently make money in markets wouldn’t be writing about it. That neglects the fact that there are a lot of big egos in finance that enjoy being right in public. Even so, if you can’t be sure if a writer is reliably able to make you money, they should at least be saving you time, which leads me to…
#2. How much time does this save me?
Most people don’t read about finance solely to make money; it’s a topic that’s central to understanding the entire world. But if you’re reading to learn, it’s important to consider the value you’re getting from your content. Tor Nørretranders’ counterintuitive concept of “exformation” is an amazing filter for all online content. He argues that two of the sources of most value are:
- The volume of information discarded to produce something (“I read 60 books to bring you this short article”).
- The computational time spent producing something (“I spent four years thinking about it”).
Both assume that the writer is able to discard the noise and leave the signal. This naturally leans away from short-term news towards more enduring content. Three recent examples I’ve enjoyed are Paul Graham’s essay on How to do Great Work, Corey Hoffstein’s 15 takeaways from 15 years running his own investment firm and Morgan Housel’s Some Things I Think, distilling years of insightful writing about wealth.
#3. Three signs of a real expert.
If you’ve ever used the Internet, you’ll have noticed that it’s incredibly easy for anyone to have an uninformed opinion. But only an expert can give you an accurate view of reality, and most importantly determine which parts of that picture are meaningful.
At Sapient Capital we always insist that experts tell us first what’s happening right now, then their analysis, then their forecast.
For example, this is what we asked of Rohit Krishnan in our excellent client call on AI.
Bloomberg’s Matt Levine writes what’s generally regarded as the best daily newsletter in finance. This is because he uses an unusually deep understanding of financial first-principles to explain what’s happening in markets. Financial news is a commodity, demonstrated by the fact that Bloomberg itself automates the writing of a lot of its articles. But wise interpretation of the news is priceless.
#4. Read real stories about real people.
It’s pretty obvious that human behavior is one of the most predictable and enduring aspects of financial markets. It’s perhaps less obvious that case studies are generally more useful than lists of biases or rules (learning why took me several months earlier this year).
This means some of the most valuable financial content you can read is historical stories that illustrate recurring patterns of human behavior. That’s why I’m such a huge fan of Neckar’s Alchemy of Money and the Founders podcast. They both generate vast amounts of “exformation” by distilling perennial stories into high-signal morsels.1
#5. Find experts who can change their minds.
Open-mindedness is the master key to wisdom. Some of the hardest things for people to change their minds about are ones that have become part of their professional identity. For example, a perma-bear turning bullish. This means these switches tend to be incredibly high signal. One that immediately comes to mind is strategist Russell Napier’s prescient switch from a 20 year deflationista to an inflationista in mid-2020. Another positive trait to look for is experts who can put a probability on their forecasts, rather than binary outcomes.
#6. Expert intuition beats false precision.
Perhaps the most dangerous piece of information in finance is a convincing, intelligent, long-term forecast. Bonus points if it’s contrarian, specific, pessimistic and plays to your personal politics. One of the hardest-won insights of my career is that there’s surprisingly little relationship between something sounding smart and being correct.
In contrast, expert intuition is based on so much unconsciously-stored information it’s often hard to explain why you reached a conclusion. When I was a stockbroker, one of the best research analyst calls I saw was simply based on a vibe he got from company management. Another veteran analyst correctly downgraded his entire sector to sell off the back of a single datapoint only he knew how to interpret. My younger clients scoffed at the lack of deep analysis, but the experienced ones took both calls very seriously. Arguably the most prescient call I’ve ever seen was Dan Wang’s warning in January 2021 that the Chinese government was cooling on their own tech sector, based on the tone coming out of reams of turgid propaganda he was willing to read.
The best and worst examples:
Using these characteristics, how would you identify the worst kind of financial content?
It would start out with a misleading datapoint aimed at serving the author’s narrative rather than an accurate depiction of reality. It would then make adamant, incorrect claims about the distant future. It would double-down in the face of conflicting information and therefore lose you money both now and into the future.
A prototypical piece of excellent financial content:
It could tell you precisely what’s happening right now, why it’s relevant, and what might happen next. It would be open-minded, probabilistic, and based on extensive experience. Ideally it would make you money immediately. But the most valuable content correctly spots a universal pattern in the present, then teaches you how to spot that pattern on your own in future. These patterns rarely restrict themselves to finance, and neither do those that seek them.
Let me know what you’d add to this list, and if you have any favorite examples of your own.
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1 I particularly enjoyed the Founders podcast on Ed Thorp and Frederick’s recent piece on Warren Buffett.
