Investment Publications

Business Newspapers

The business newspaper sector is taken up by 4 players - The Wall Street Journal, Investor's Business Daily, the Financial Times, and Barron's. The Wall Street Journal is the 100 year old stalwart which publishes generic business information. Then IBD was created to fill the hole that the WSJ left by publishing statistical information about stocks that can directly make traders (CANSLIM traders mostly) money. Financial Times is an international business paper which is basically the global version of The Wall Street Journal. And then Barron's is the only weekly newspaper.

Business newspapers are one of the least efficient sources of valuable investment research. Not only do they publish tons of content but also very little of it has value because it is mostly relegated to data (mainly business news and stock quotes) and no analysis. Twenty years ago, the data published in newspapers had value because the internet and business shows like CNBC weren't around to transmit data like stock quotes and business stories. But after the internet exploded in the mid-90's, the data from newspapers became worthless since you could get more recent and comprehensive information online.

Since the data isn't useful then the only content that has much value would be the analytical articles but they usually have only one or two per day. And the analytical articles they do publish also tend to be news-inspired. For example, the day before a Fed meeting you will find an article like "What will the Fed do?," which is a topic you would have probably read about plenty already. Therefore, the amount of content that actually makes you money is pretty low. Barron's is the exception. They have tons of analytical articles and they only publish weekly so the signal-to-noise ratio is much higher.

Newspapers are still fine tools for long-term investors to check in and read what's going on. These long-term investors just want to know what the major business stories are each day and what the general investing climate is. But for traders or full-time investors, newspapers are becoming more and more un-needed each day. It will be interesting to see if they restructure their products to adapt to a newer age.

Business Magazines

Magazines tend to be much better than newspapers because they have more analysis instead of news. Many times you'll see BusinessWeek have five or more articles on individual companies. The different magazines focus on different aspects of business. Some focus more on entrepreneurship or personal finance and less on the stock market. If you are only going to read a couple, then you should focus on the general business ones (BusinessWeek, Forbes, Fortune).

Personal finance magazines
Personal finance magazines generally split their content into two categories: active investing and personal finance. Although investing is technically a subtopic of personal finance, I put active investing (as opposed to passive investing via index funds) in its own category for a couple of reasons. First, it covers a very specific body of knowledge and requires developing a skill. And second, because it is an ongoing activity which requires you to invest your time into beating the market, in my opinion an active investor is similar to a business owner, in that he has to micromanage and make individual decisions.

When it comes to the personal finance content, these magazines can be very useful in keeping you abreast of the latest issues affecting the monetary aspects of your life. They are very helpful in this regard. But one thing I don't like about personal finance magazines is that they take a values-free approach to money. They may teach you the best place to find deals on products but they never address whether or not you should be buying them. One thing I would love to see would be more articles detailing the decision-making process of consumers or studies about the relationship between money and happiness. These are the kind of things you see in Psychology Today magazine or hear John Tesh talking about. It's possible that the higher-net-worth readers don't need these kind of lessons because they are better at making decisions about money than the typical middle-class debt addict. But, even if this is the case, I still think it would be enlightening.

Personal finance magazines tend to be directed at people who are not investment savvy and are not full-time investors. Because of this, these magazines rightly approach investing from a broad perspective and generally recommend indexing as the best investing strategy. This would lead you to believe that they wouldn't attempt to be stock pickers. But, it turns out they give quite a generous amount of coverage to individual stocks.

Their coverage of individual stocks can be convenient for investors looking for new investment ideas to do their own follow-up analysis on. They also serve as an opportunity for investors to simply become acquainted with new companies that they have never heard of before. This is a key benefit because these magazines, coincidentally, often profile stocks of companies that aren't well-known. I also like how each article always has a convenient chart that lists all their picks with all the key fundamental data in case you want to just skip the article and go straight to the internet to look them up.

The problem is that personal finance magazines don't specialize in stock analysis, so the quality of their coverage of stocks is very weak - and even dangerous at times. The March 2006 issue of SmartMoney had an article debating the pros and cons of Electronic Arts stock. In it, one of the analysts stated:

"Sure, it's forward P/E is in the high 30s but we expect the company to increase earnings around 20 percent a year, so it's not overvalued."
A P/E of almost 40 for a stock growing at 20%? Are you kidding me? This advice goes beyond bad - it is incompetent and irresponsible. Not surprisingly, the stock is down 20% two and a half years later.

Personal finance magazines will sometimes even feature a stock that they actually admit might not be a good investment. I found a good example in the December 2006 issue of Kiplinger's. They had an article about CarMax where they stated in the conclusion:
"The stock is not cheap. The stock sells at 28 times [earnings]."
Well, thanks for recommending a stock that you think is expensive. The article touts the company as one of the "few open-ended growth stories". But with $6+ billion in revenue, even a moderately experienced investor can that tell this is a classic example of a fast-growing company that is about to experience a major deceleration in growth. In addition, the company sells a low-margin, big-ticket product which should cause the stock to have a lower valuation due to higher earnings variance and economic sensitivity. Two years later, the stock is down 50%. In that same issue, they also specifically recommended that you buy housing stocks and Sallie Mae.

Sometimes, their articles tend to be "profiles" of different stocks, rather than explicit recommendations. Many times, they do this when featuring a particular industry. For example, in the November 2006 issue of Kiplinger's there is an article about the rising use of biofuels. Within the article there is a table entitled "Four companies that are big in biofuels", which listed a few companies in the industry. These weren't stocks that they particularly recommended buying. They were simply letting you know you could buy them if you wanted. It seems like they publish these half-hearted articles on individual stocks simply to meet their page count quotas for their investing section and to supplement their timeless personal finance advice with content that seems more opportunistic. I personally don't mind this because I would never put money into an investment without looking at it under my own microscope. But these casual references to individual stocks can be damaging to amateur investors because many of them will misinterpret these profiles as recommendations.

For these reasons, I think it is questionable as to whether they should have any articles at all about individual stocks.

Because of their nature, personal finance magazines tend to have a very high "skim ratio," in that most readers don't read most of the articles. This is for two reasons. First, many of the articles simply won't be relevant to most people because of the broad spectrum of content that is covered. For example, anyone under 50 years old doesn't care about rising drug costs. The second reason is that the articles have a varied degree of complexity. Articles dealing with basic financial issues won't appeal to advanced readers, and vice versa.

In recent years, some people have questioned the independence of the mutual fund recommendations of personal finance magazines. A Stanford study released in 2005 by Eric Zitzewitz and Jonathan Reuter concluded that the major personal finance magazines (Money, Kiplinger's Personal Finance, and SmartMoney) were more likely to recommend a mutual fund if that mutual fund had advertised in the magazine compared to funds that had not, even controlling for other factors like performance, expense ratios, and advertising levels. The next logical question is: does this affect investors' returns? Curiously, not really. They found that while positive mentions did significantly increase fund inflows, they did not successfully predict returns. The future returns of the funds that advertised in the magazine were similar for the funds that they predicted would have been mentioned in the absence of bias.

So even though this issue probably won't affect your bottom line, it should still serve as a reminder of the conflict of interest involved in taking financial advice from sources that accept advertising. I don't recommend people ignore their fund recommendations, but this issue illustrates how their recommendations are just a starting point in your decision-making process and should be backed up by further research.

Investing Web Sites

Because web sites have the ability to search through tons of updated data, most of the useful web sites tend to be data publishers instead of analysis publishers. Even though the web is saturated with investing information, there is a surprising lack on valuable analysis available. Most of the analysis available is from sites that require a subscription - either paid institutional research from companies like S&P or Morningstar (which you can actually get free through online brokers) or stock picks from sites offering some sort of system to make you money. The investment bloggers may be able to fill this hole but we will see. There are only a few web sites where I can find valuable analysis - Motley Fool being one of them.

Investing Blogs
Investing blogs have potential to become a useful resource but it seems very few real traders have taken it upon themselves to publish information on their real trading. Even though there are many decent blogs with good analysis, there is just so many blogs with so much information to wade through that it hinders the research process.

The biggest problem with investing web sites is that many of them start off with the noble intention of giving away high-quality analysis and advice because the majority of information published by the investment industry establishments is useless. But as these sites get more popular and successful, they are forced to confront the same realities of the very establishments that they sought to differentiate from, such as profiting from their operations.

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