third-party endorsements: why experts appear on financial tv/radio

the 95/5 rule

I was driving through a rural part of southern New Jersey last week and listening to Bloomberg Radio on XM.  The program I was listening to got me thinking about my first job as a full-fledged portfolio manager. On my first day (in 1984), my boss pointed to a three-foot high stack of research reports that she had received in the mail that morning.  This was an everyday occurrence, she said.  95% was trash; part of her job–and now mine–was to read through a pile like that each day looking for the 5% that wasn’t.

Something like that is why I was listening to Bloomberg.

Once in a while, though, a genuine financial expert will appear on one of the Bloomberg shows.  The interviewer will ask intelligent questions–or at least allow the expert to speak, rather than filling the air with the host’s views.  The guest will give interesting and useful answers.  This isn’t the norm.  But it happens.  Hence my thoughts about my old boss’s 95/5 rule.

But why do really knowledgeable guests appear on financial tv/radio?  Why do they fawn on their hosts in the clear attempt to be invited back?

third-party endorsements

The answer is that an analyst or portfolio manager’s appearance on TV or radio legitimizes him to his clients in a uniquely powerful way.

This doesn’t make an enormous amount of sense.  But it’s true, nonetheless.

The client may understand that the media personalities don’t have a particularly deep knowledge of finance.   Some have had past brushes with the law.  A few have clearly adopted a entertainment-first attitude, and make no pretense of preparation or expertise.

The client may also realize that the guest may only have been invited to appear on a show because his firm is a big advertiser.

Still, the appearance on tv or radio can carry as much weight with that client as the manager’s track record.  For retail investors, it carries more weight than the numbers.  Even better if the manager is a frequent guest or if the interviewer says nice things about him.

The bottom line:  despite evidence to the contrary, people believe the financial press is objective and knowledgeable.  At the same time, people generally distrust marketers who work for, i.e., are paid by, an investment manager.

Therefore, a press endorsement–a favorable mention in a newspaper or magazine article, an interview on tv or radio–is a huge help in selling the interviewee’s investment services.  So experts–and non-experts, as well–have a strong financial interest in courting the media, flattering the interviewers and generally twisting themselves into pretzels, if need be, to appear in print or on shows.


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