Parkinson’s Law is Killing Your Returns

Why the financial media tells you what you want, and not what you need, to hear.


Parkinson’s Law is thriving in the financial media. It holds that “work expands so as to fill the time available for its completion.”

I find it ironic that Parkinson’s Law was initially set forth in a preeminent financial magazine, The Economist, in 1955. At that time, there were relatively few outlets publishing financial news. With the advent of the Internet, everyone with a computer can be a financial blogger. They have to do something to fill up the space available to them. The problem is that much of what passes for financial news is inaccurate, misleading, unnecessary and harmful to investors.

A quick look at the articles on Yahoo Finance on June 29, 2013 is illustrative:

Blogger YeeYeon Park enlightens us with this story: "Buckle Up! Expect More Market Volatility this Year". The article has observations from “strategists” like Tim Biggan, the chief market strategist at MoneyBlock. Biggan warns us that, "We're in for a long-range-bound summer.” I have no idea what that means or why investors should pay any attention to Biggan’s musings about the future direction of the markets.

In a similar vein, Sam Stoval, the chief equity strategist at S&P Capital IQ, is quoted as raising the firm’s 12-month target for the S&P 500 Index to 1,780 from 1,670.

Notably missing from this article is any data indicating that the predictive power of those quoted is superior to what you would expect from a monkey throwing a dart at a board. The absence of this data is understandable. The reality is that consistently and accurately forecasting stock returns or the direction of the markets has been determined in well-researched studies to be impossible.

In a separate article, Dennis Gartman, founder of The Gartman Letter, advises investors that the stock market will go a “good deal higher” and “its no longer time to be short gold.” The article lacks any data indicating why you should pay attention to newsletter forecasters. Research by Mark Hulbert of the Hulbert Financial Digest shows us why that’s the case. Hulbert reviewed the performance of 103 market timing strategies over a decade. He concluded that 80 percent of market timers fail over any reasonable period of time.

Instead of relying on market-timing newsletters, you would be better advised to heed the sage advice of respected journalist Jason Zweig, who stated: "Whenever some analyst seems to know what he's talking about, remember that pigs will fly before he'll ever release a full list of his past forecasts, including the bloopers."

The situation is not hopeless. While much of what passes for financial journalism is complete nonsense, there are notable exceptions. An article by Jason Zweig in The Wall Street Journal is an excellent example of responsible financial journalism. Zweig accurately notes that “good advice rarely changes, while markets change constantly. The temptation to pander is almost irresistible. And while people need good advice, what they want is advice that sounds good.”

Most of what you read is exactly the kind of “pandering” decried by Zweig. It validates Parkinson’s Law and is harmful to investors seeking sound, academically-based financial advice.

Dan Solin is the director of investor advocacy for the BAM Alliance and a wealth adviser with Buckingham Asset Management. He is a New York Times best-selling author of the Smartest series of books. His latest book, 7 Steps to Save Your Financial Life Now, was published on Dec. 31, 2012.

The views of the author are his alone and may not represent the views of his affiliated firms. Any data, information and content on this blog is for information purposes only and should not be construed as an offer of advisory services.