On Minyanville’s Pivot

This week I’m reading Josh Brown and Jeff Macke’s Clash of the Financial Pundits (New York: McGraw-Hill, 2014) during my work commute. Brown and Macke interview financial media pundits and bloggers. Minyanville’s Todd Harrison has overshadowed the book’s release in announcing that the popular financial news site will pivot to financial services:

 

Our current business model does not extend to financial services, and that’s OK — it’s broken anyway. I do, however, believe that what we’ve built is extremely valuable to a broker-dealer looking to leverage a fertile audience, acquire new customers, optimize the social sphere, turn clients into community, market through new channels, engage next-generation investors, and build a lifetime relationship.

This, in my view, can be accomplished by attaching Minyanville to an existing financial services firm as an incubation lab and allocating our assets and abilities across their business model. There are several reasons this makes sense — among them, education, credible content, and creativity are rare commodities on Wall Street.

Financial institutions have been reticent to embrace the online world given regulatory and reputational concerns; they now understand the digital realm isn’t going away and the millennial generation — along with a massive transfer of wealth — is quickly approaching. If they don’t incubate the human capital and creative elements necessary to service the entire vertical across multiple channels, they will be left behind.

Minyanville provides a plug-and-play, end-to-end solution that delivers smart market commentary with editorial rigor through a FINRA- and SEC-compliant mechanism. This is not traditional research; content is the best online currency — engage the audience in a daily dialogue with one foot inside the firewall (give them a reason to stay in the walled garden) and the other foot outside the firewall (broaden the brand shadow and more effectively target the marketing spend).

 

Over 14 years ago when Richard Metzger and Gary Baddeley hired me to edit the Disinformation website they were pivoting to television production, publishing, DVD, and video-on-demand interests. Stratfor’s George Friedman planned the StratCap hedge fund before Anonymous hacked his geopolitical intelligence website.

 

Behind all of these moves are two strategic realities: (1) most web content generates zero income – a painful truth for editors and writers; and (2) value creation often lies in tailored products and services for a website’s audience. Minyanville’s version of (2) was a subscription service for premium content. Disinformation’s version was book, DVD and video-on-demand projects — the site became mostly user-generated content from March 2008. This was all prior to Henry Blodget’s career ‘second act’ with BusinessInsider.

 

I made a series of decisions about these shifts over the past decade. After undergraduate and postgraduate school I pursued a university-based research career from 2004 whilst doing a second editorial stint with Disinformation. I stopped freelancing for magazines during this period due to publishing embargoes that the research consortium I worked for placed on my research. After leaving TDC Entertainment on 29th February 2008, I turned down several offers to edit websites or to be involved in publishing projects. After March 2007, I self-funded my academic research. Today, I blog – as Josh Brown does – primarily for self-education.

 

On the surface Harrison’s pivot decision for Minyanville to partner with financial services as an “incubation lab” looks like an entrepreneurial venture. I’m a little skeptical:

 

(1) As Brown and Macke show in their new book, most financial commentary is noise that is unhelpful to traders. Twitter, Andrew Ross Sorkin’s Dealbook section in The New York Times, and a Bloomberg or Wall Street Journal subscription provides most of the major financial news and the major newswire services.

 

(2) Harrison omits that most website content is usually either for subscription traffic, or is a loss leader.

 

(3) I read Fundamentals of Stream Processing (New York: Cambridge University Press, 2014) and it confirmed that the real alpha is already in complex event processing, machine learning algorithms, news analytics, and high-frequency trading algorithms. This area is at least 4 to 5 years old in quantitative finance already. It may continue to disrupt the broker service model that Harrison has in mind. How many of Minyanville’s customers really have the financial assets to become high net worth customers for a broker?

 

(4) Harrison looks to the Millennials as the new investor class – but most of them can save money and time by paying US$1 for William Bernstein’s monograph If You Can: How Millennials Can Get Rich Slowly; investing in a low-cost index fund like Fidelity or Vanguard; and reading free web commentary for self-education. More Millennials are likely to use mobile services than subscription-based websites.

 

(5) As George Friedman found with his StratCap venture, developing alpha/edge in investment and trading is a very different skillset to financial news or commentary. My experience from several different contexts over a 10-year period is that news arbitrage strategies are hyped by journalists and editors — but have significant alpha decay for traders — particularly in a market dominated by high-frequency trading algorithms and low-latency arbitrage. Brown and Macke confirm that this is the case for retail traders who try to trade the news on Bloomberg or CNBC – and that the major news outlets are set-up with availability and disposition biases in mind.

 

(6) Thomas Frank’s One Market Under God: Extreme Capitalism, Market Populism, and the End of Economic Democracy (New York: Doubleday, 2000), Thomas Schuster’s The Markets and the Media: Business News and Stock Market Movements (Lanham, MD: Lexington Books, 2006), and Dean Starkman’s The Watchdog That Didn’t Bark: The Financial Crisis and the Disappearance of Financial Journalism (New York: Columbia University Press, 2014) show that the financial media-retail trader nexus has been a problem noted in the 1995-2000 dotcom and 2003-07 real estate speculative bubbles, and also in the 2007-09 global financial crisis.

 

I will keep an eye on what Harrison’s Minyanville evolves into and what it incubates. However, Harrison’s pivot decision looks like an exit.

18th June 2013: The Wolf of Wall Street Trailer

 

There are two kinds of Wall Street films: the techno-science thriller involving financial risk management and VaR (The BankMargin CallArbitrage); and the elite trader’s excessive lifestyle (Wall StreetBoiler RoomWall Street: Money Never Sleeps). Martin Scorsese’s forthcoming film adaptation of Jordan Belfort’s ‘pump and dump’ memoir The Wolf of Wall Street (New York: Bantam, 2007) goes for the latter, because it appeals to a far broader audience. The trailer benefits from Kanye West’s pulsating new song ‘Black Skinhead’ (from Yeezus).

 

Belfort’s friends got him the film deal with Scorsese and actor Leonardo DiCaprio whilst Belfort was resurrecting his sales career on the Australian seminar circuit (PDF). In just a few years Belfort transformed his Straight Line Sales technique from free MP3 interviews into slick website and seminar circuit presentations on sales psychology. Josh Brown outlines in his book Backstage Wall Street: An Insider’s Guide to Knowing Who to Trust, Who to Run From, and How to Maximize Your Investments (New York: McGraw-Hill, 2012) how pitch books like Befort’s Straight Line works. Maybe Belfort’s seminar clients in Australia need to read Brown’s book and blog. It all reminds me of telemarketing stints I had in the mid-late 1990s, whilst reading Tom Hopkins and Zig Ziglar, and watching friends get recruited into Amway’s multi-level marketing schemes. Maybe Belfort will be able to pay back his clients, after all, if his deal includes a share of Scorsese’s film residuals.

 

The elite trader image of ‘conspicuous consumption’ has its roots in Thorstein Veblen‘s leisure class economics, and Reagan era money managers like Henry Kravis, Peter Lynch, Victor Sperandeo, and Martin Zweig. The traders I know enjoy the Hollywood media imagery. But they also know it is a myth that artificially inflates the subjective expectations of how trading actually works and what it is really like. The ‘excessive lifestyle’ myth actually serves as an entry barrier. Most novice and retail traders will more likely ‘blow up’ their trading accounts.

4th October 2012: David Einhorn @ Value Investing Congress

David Einhorn (ValueWalk)

 

Reformed Broker Josh Brown has notes posted from David Einhorn‘s speech to the Value Investing Congress.

 

ValueWalk also has an analysis of Einhorn’s speech and observes that sell-side analysts now follow the hedge fund manager’s thinking.

 

I’ve followed Einhorn since his book Fooling Some of the People All of the Time revealed his analytical research approach to value investing.

 

Einhorn’s list of long and short stocks is an interesting read. You sense Greenlight Capital‘s research and valuation processes: the significant factors (management view, company, industry, market, macroeconomic and causal) that shape companies, and the Bayesian inferential view of investor beliefs about them; how this analysis then translates to a market forecast; and how Einhorn intends to capitalise on these dynamics. The estimate assessment of multivariate factors shape investor beliefs and decisions. The market action which occurs from this creates opportunities using behavioural finance and market microstructure models (with a nod to technical analysis and high-frequency data analysis of transaction flows and volatility). It’s like reading Michael Mauboussin about how to think about investment ideas; or Peter Schwartz about trend forecasts and scenarios; or Robert Jervis and Gregory Treverton on strategic intelligence.

1st October 2012: Money & Freedom of Choice

No artistic integrity beyond this point

 

Reformed Broker Josh Brown makes an interesting observation about how money shapes artistic freedom and specifically the freedom to release a creation into the world, on your own terms. Browns’ examples include the late New York Times publisher Arthur O. Sulzberger; Renaissance and Medici patronage of artists; and the ‘sellout’ debate about ‘indie’ rock bands.

 

‘Dabblers’ and non-artists can have a Romantic image of the relationship between artistic creation, money, and freedom. Early career academics talk of an attractive ‘life of the mind’. Journalists talk of a Fourth Estate role in society and the investigative craft. Musicians talk of innovative strategies for new releases. Yet each of these beliefs about freedom also involves financial choices about money. The academic ‘life of the mind’ is often based on institutional incentives, patronage networks, and administrative support. The Fourth Estate and investigative journalism both need funding mechanisms to sustain a ‘quality media’ reputation. The much-touted ‘free’ albums by Radiohead and Nine Inch Nails arose when both artists had fought with their major labels and were label shopping for new contracts. Wilco’s experience in I Am Trying To Break Your Heart is another example of being ‘dropped’ by one major label and using an unreleased album as leverage to create a bidding war with other major labels. U2, Depeche Mode, and New Order now have detailed, archival reissues of their early, influential albums in part because they have strong management, legal and creative teams, and have ‘decision rights’ control of their intellectual property.

 

Brown is correct that money-awareness is not a Mammon-like ‘sellout’ of artistic integrity. The recent controversy over Amanda Palmer‘s use of ‘crowdsourced’ musicians and whether or not she should pay them is a small-scale incident compared with the business complexities of major labels’ accounting practices, the creation and recognition of ancillary revenue streams, the control of song catalogues, and intellectual property strategy. The latter area will be an important battleground for academics, journalists, musicians, and other so-called cultural creatives. You might start with Intellectual Property Strategy and Essentials of Intellectual Property; consider the Schumpeterian dynamics in Driving Innovation; and understand the corporate and institutional perspectives of Intangible Assets and Harvesting Intangible Assets.

 

Photo: classiccopenhagen/Flickr.

31st July 2012: Fixing TheStreet.com

In the late 1990s, I used to discuss magazine redesigns with publisher/editor/journalist Ashley Crawford. I also got to interview designer Roger Black on his creative process. I kept this in mind when Disinformation went through several redesigns whilst I was site editor. Now, Josh Brown, John Standerfer, and Mebane Faber consider how 1990s trader site TheStreet.com could be renewed. Brown focuses on the kind of editorial and content changes that I would discuss with Richard Metzger and Gary Baddeley at Disinformation. Faber notes the growth in financial and trader bloggers who challenge the late 1990s model of a site with editorial and writing staff. Standerfer distinguishes between three types of content developers: Reporters from media outlets; Observers who are like Faber’s bloggers; and Parrots who create ‘noise’ to drive advertising revenues and social media presence. (My preference is to combine the Reporters’ craft with the Observers’ accessible writing.)

 

It’s a good exchange that could apply to a lot of sites.