One of Motley Fool's favorite strategies is to pick a hot company like Netflix or Disney and relentlessly talk it up. Unlike the traditional pump-and-dump, the goal isn't to drive up that individual stock (it's hard to move a Disney); instead what's being pumped is the idea that you're losing money by not being in. This frame of mind makes readers receptive to buying MF's investment books and $199 newsletters even though, based on their columns, they have little to offer other than conventional wisdom and questionable analysis.Gelman offered an alternate suggestion:
But I wonder if there’s something else going on. I don’t read The Motley Fool—actually, I’ve never looked at it before, but I did click on it just now when preparing this post—but I do subscribe to the New York Times. The Motley Fool’s motto is “to educate, amuse & enrich.” The Times is not enriching me, but I do read it to be educated and amused. I wonder whether the Fool’s pushing of Netflix is part of the educate-and-amuse bit. Okay, the story is not very amusing and apparently not educational at all—but, from the reader’s perspective, what the Fool is providing with the Netflix story is an ongoing saga, a mini-soap-opera.
The best analogy might be the newspaper coverage of a sports team. Yeah, the Tigers are gonna go all the way this year, check out their new pitching staff, etc. These kinds of stories have their own internal logic and they can be pegged to local news. Thus, the Emmys can be spun as evidence for a pre-existing story where Netflix is a hero, just as the local newspaper can spin a hot streak by the third baseman as good news for the home team.
I generally get annoyed with people who read hidden meaning into a story element when there's an obvious narrative or commercial reason for including that element. My go-to example is critics who read puritanical agendas into teen-slasher films, ignoring the facts that:
Exploitation film-makers are constantly looking for a way to incorporate sex and nudity or "the suggestion thereof" into scripts;
They are also looking for ways to scare the audience and for directors of limited talent, one of the easiest methods for making an audience jump is to spring the monster out when the victims have been lulled into a false sense of security;
In order to stretch this kind of story out to feature length, it helps if you can find an excuse to have one or two character at a time slip away from the group.
Under these constraints (and generally assuming none-too-gifted screenwriters composing as fast as they can type), it would be surprising not to see the sex-then-death plot device showing up in cheap horror films.
So am I guilty of the same kind of over-reading with Motley Fool and Netflix? Maybe a little but there are a couple of caveats that need to be thrown in.
First of all, a good sales pitch is generally a good story but it has to be a special kind of story, one that ends with the customer in just the right frame of mind. Unless I'm missing a revenue stream here, these MF posts exist solely to drive people, directly or indirectly, to purchasing an MF publication. They have to be entertaining enough to hold the readers' interest but, unlike a movie or a TV show or a magazine article, they have to do more than just entertain; they have to sell. Given that constraint, you can't analyze the story without analyzing the pitch.
Second, are stories of glamorous successes a good way of giving investment advice? I recall Peter Lynch saying that he preferred unglamorous companies that other investors were likely to overlook (if memory serves, he specifically said that the corniness of the name "Moe" in the Pep Boys logo made him much more eager to buy the stock). Given that the vast majority of us have no business picking stocks, is it responsible to sell the amateur investor on buying the superstars corporations that everybody's talking about?