Street Capitalist: Event Driven Value Investments

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Learning from Michael Burry was the 250th post here at Street Capitalist. The responses from everyone were awesome and it is now the most viewed post on this blog!

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Today, Abnormal Returns asks us what role it should have in the future of the investment blogosphere. This question brings to mind some of my own thoughts on investment blogging and some ideas I’ve had in my head for a while. Before addressing what Abnormal Returns should be, I’d like to go over some of the ideas in that post.

Quality Control by Blog Type

Quality control is the most important problem facing investment blogs today. The metrics for assessing quality are dependent upon the type of blog. In the investment blogosphere, blogs generally come down to two sides:

1. Commentator types, like Paul Kedrosky who mainly focus as a central source for news he thinks is important and an outlet for his comments on current events. Going to Kedrosky’s site will keep one informed, but is probably not the best place for learning investing.

Quality control with these blogs is hard to peg. There might not even be a need for quality control. These sites are more like opinion pieces in the newspaper and in that case, they don’t have to be correct. They only need to serve as a place to get a specific type of perspective.

2. Trader/investor sites. These sometimes overlap with the previous topic. They’re written from a trader or investor’s point of view, and often you will see posts that actively go over new investment strategies or even ideas.

It’s my belief that quality control here is vastly more important, there are actual investment ideas being generated here. The best thing that these sites can offer to their readers is a level of transparency in their posts. For my blog, I list the positions I hold and make posts that note my entry date in these positions, and update a few times a year with how they’re doing. If I propose an investment idea i’ll also address whether or not I actually hold a position in the company myself. Both of these are important aspects that I believe should be adhered to.

A while back, I took part in an academic study on the investment blogosphere by a prominent university where I was asked questions on how I know what blogs to read and how I rate them. I specifically mentioned that I look at the track record of these bloggers in order to see whether or not they’re worth reading. A track record does not have to solely be your actual performance, it can also be the way you research, the way you summarize and explain your methodologies for how you invest/trade. All of these are sources that actually teach us and probably teach us more than a simple performance number — this is the key to monitoring the quality of trader/investor blogs.

Gatekeepers, Traffic, and Quality Control

I look at Abnormal Returns as the Drudge Report for investors. Often, I’ve discovered new sites by just visiting AR and they get added to my RSS Feed list. AR seems to take an active approach to showing a variety perspectives on one of its daily themes which makes it worth reading. A key difference between Matt Drudge and AR is that they at least appear to have different motives. Drudge pushes a certain ideology, while AR pushes themes of the day.

One thing I want to point out is that “gatekeepers” like AR can actually help in quality control. Linkfests like Abnormal Return push traffic to us which can help start discussions and create discourse.

If you compare us (financial bloggers) to our older second-cousins (political bloggers) there are some big differences. The political blogosphere is vastly greater than our own. Looking at some of the latest traffic numbers, you’ll see that sites like the Drudge Report (which does not actually report but showcase) and the Daily Kos or Huffington Post actually receive more hits than many newspapers.

Nielsen Online Names Top 30 News Sites

With such huge numbers in traffic, these groups are able to bring together larger debates than we can, which can uncover shoddy analysis and perform fact checking.

Look at the traffic numbers of major financial media outlets: the Wall Street Journal, the Financial Times, the Economist (or FMSM- the financial mainstream media). They generally perform better than the closest “independent” blogger driven competitor available – Seeking Alpha. Part of this is because we’re thinking strategically when we conceive our blogs. Most bloggers realize that there is little chance of them competing with the financial press establishment in general reporting.

The other part is because the FMSM typically have strong brand names and are associated with quality. In financial journalism, quality is an important factor, and I think this is primarily why the financial press is an oligopoly of sort. The barriers to entry – earning the recognition that you’re a worthwhile voice to listen to is difficult.

Some of us fight the war of the flea. We (initially) write about niche areas in finance that are not served by the FMSM.

To give you a few examples, look at Equity Private, Tanta (Calculated Risk), or Macro Man. Each brings a perspective that simply could not come from your run of the mill financial journalist. Unfortunately, what ends up happening is that these blogs become valued by industry professionals but typically lack a broader appeal.

Calculated Risk is probably an exception tot his, but part of that is probably because of the constant news about sub-prime mortgages in the news. I’ve been wondering if the broader audience will keep reading sites like Calculated Risk, after the credit mess blows over.

The future for Abnormal Returns and the investment blogosphere?

I can’t help but wonder about the future of the investment blogosphere and the FMSM. Will a blogger driven site ever match the traffic of the WSJ? To do so would be tough. First, content would have to be aggregated. This alone puts up a host of issues. Many bloggers have their own advertising and feel that aggregators take their content for free, without contributing traffic to add meaningful revenue to their blogs.

Then, somehow content would have to be screened. Seeking Alpha is just a mass glutton for content, they end up carrying some trashy contributors. The Huffington Post and Breitbart both supply the news, but also offer contrasting perspectives. The Breitbart blog network is mostly comprised of conservatives while Huffington Post offers a liberal perspectives. Maybe new investment aggregators could come onto the scene that provide different perspectives on the market. Some contrarian, some more mainstream. The fact that these aggregators would have content written by investors and traders, or commentators with professional backgrounds would help differentiate themselves from the typical financial journalists.

Finally, there would be the issue of the financial press broadening its scope. The FT and WSJ feature extensive coverage on current events, foreign and domestic. An aggregator would have to feature that content as well to match and be a true competitor.

With respect to Abnormal Returns though, they should stick with what they’re doing – making a good daily linkfest. I’m actually pretty glad that they have not taken a Digg or Reddit approach. Some sites are trying to become the Digg for financial news, but the problem with this model is that it thrives on mob mentality. Contrarian perspectives can get ignored by these sites and makes the editorial nature of AR’s linkfest advantageous. As for pursuing profit, as long as it is tasteful, I don’t see how a few ads here and there could hurt.