Picking On Headlines 4

Here’s a headline from MarketWatch on March 30th.

The man who was once the world’s youngest billionaire now says he’s solved the stock market. Here’s his astonishingly simple portfolio.

I’m going to spend a bit more time on this one. I’m also going to take the time to address the whole story too.

This headline is the epitome of everything wrong with financial media. It also has all the usual ingredients.

Start with someone with a previous position of authority (a once youngest billionaire), add a phrase about solving something that isn’t a problem (the stock market isn’t a puzzle), then toss in a needless adverb (astonishingly).

Here’s my attempt at a headline. I followed the recipe.

She managed a hedge fund that provided double-digit returns in the last five bear markets. Here’s her painfully straightforward strategy.

Authority, a fixed problem, and a needless adverb.

Now for the article itself.

“As portfolios go, the one put forward by John Arnold, the billionaire energy trader turned philanthropist, doesn’t get simpler.” The author then tells us the portfolio is made up of two index funds. Not one index fund. Two.

“Arnold showed that a portfolio equal-weighted to the technology (XLK) and energy (XLE) sectors…posted double-digit returns in six of the last seven years.” So have most U.S. broad market index funds (and mutual funds).

“Arnold’s portfolio notably has outperformed the 60/40 balanced portfolio of stocks and bonds in those years.” This is comparing apples to oranges. It’s like comparing poetry to a screenplay. A fund made up of 60% equities and 40% bonds should never be compared to a 100% equity fund.

“But it makes intuitive sense. There’s been rapid progress in new technologies, such as artificial intelligence, that is revolutionizing the world economy. At the same time, as the international order crumbles, there have been two wars — first Russia’s invasion in 2022 of Ukraine and now the U.S.-Israeli attack on Iran — that have led to supply shortages in oil and gas, sending prices surging higher.” You can’t predict the future. This is what has happened. Not what will happen.

“Granted, the simplicity of Arnold’s portfolio could be its undoing. If fears that artificial-intelligence expenditure prove correct, then the tech side of the portfolio…would suffer. Equally, if countries respond to energy-price spikes with windfall-profit taxes, then the energy side of the portfolio could stall even with rising prices.” Then how did he solve the stock market?

These articles should not be read. I don’t like that I had to even comment on it. But it’s important because the ingredients of the recipe are flawed.

People who were successful in the past might not be successful in the future.*

Neither the economy nor the stock market are problems that can be solved. They are us. Billions of people interacting every minute of every day.

And adverbs drive me insane. That’s more personal than anything. But give me a break.

* With thanks to Paul Graham: “experts are experts in the way the world used to be.”