What Fire Finance’s Top 100 PF Blog List Can Teach Us About Investing, Bestsellers and Cheerleaders

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100.pngIn September Fire Finance published at list of the Top 100 Personal Finance Blogs based on traffic. Based on data from Quantcast, Get Rich Slowly was ranked #1 with 51,095 visitors in the month of September. And Fire by 40 rounded out the list with about 2,000 visitors.

(Interestingly, The Dough Roller wasn’t on the list even though based on the number of visitors it received it should have been, but I digress.) As I considered this list, it occurred to me that it can teach us a lot about the stock market and investing. It can also teach us about why some books make it to the bestseller list and others don’t, why some kids are popular in high school while others are not, and why some businesses succeed while others fail.

Hmm, it can tell us all that, you ask. Read on.

To see what I mean, let’s conduct a short thought experiment with the stock market in mind. Let’s imagine that each blog on the list is a public company that we can invest in if we choose. Their traffic represents earnings and market capitalization. How would you answer the following “simple” questions:

Question #1: Get Rich Slowly has the most visitors of any PF Blog because [fill in the blank].

This seems like an important question. I imagine JD wants to know the answer so he can keep doing the good things that have brought him so much success. As an investor, we would want to know what the ingredients are for a successful blog. And for other bloggers, they would want to know what has worked in the past so that perhaps some day they are on the list, or in the top 10, or (forgive me JD) even in the #1 spot. So we could ask a similar question of My Money Blog (#2), The Simple Dollar (#3), or any of the other blogs on this list.

It turns out, though, that the question is next to impossible to answer. As soon as you identify some aspect of a top PF Blog that you like, or that you think helped contribute to its success, you realize that many PF Blogs with far less traffic have the same or similar feature. For example, you may enjoy the content and quality of JD’s articles (I do), but that’s true of many PF Blogs. Certainly the length of time a blog has been active is an important element, but many PF Blogs have been around as long as those in the Top 10. The point here is not that the top PF Blogs are no different that the rest. The point is that the differences are impossible to identify in any meaningful, useful way. So answering this “simple” question turns out not to be so simple. So let’s try a harder one–

Question #2: Could you have predicted the success enjoyed by the top PF Blogs based on a review of their first post?

It’s this question that really matters to investors. Can you, like Warren Buffett, spot a potential success before others do? I went back and looked at the oldest post I could find on some of the top PF Blogs. For JD the post was called Teens and Money, was published on April 9, 2006, and had 0 comments. At My Money Blog, the first post was called Hello World!, was published on December 6, 2004, has 0 comments and consists of the following:

Whew! I finally installed Movable Type. Now to get some sleep�

(My first post! December 6th, 2004.)

At Five Cent Nickel (#4 on the list), the first post was published on May 1, 2005 and called Welcome. If you ever wondered where the name of FCN came from, check out the first post.

The point is, it would have been impossible to predict the success of these PF Blogs, or any PF Blog, based on the first post or, more to the point, before the blog achieved at least some level of success. And as an investment, by then it would have been too late to make market beating returns on the stock. To underscore the difficulty in stock picking (or PF Blog picking), consider these two additional questions:

Question #3: Of the PF Blogs ranked 11 to 100, will any of them break into the Top 10 over the next year, and if so, which ones?

Question #4: Which PF Blog over the next year will enjoy the greatest increase in traffic on a percentage basis?

If you think you can answer correctly questions like these on a consistent basis, give Mr. Buffett a call. If you can’t, please continue reading.

So what’s an investor to do?

Buy an index fund. The difficulty in answering the above questions explains why index funds typically beat actively managed funds. If I were going to invest in the Top 100 PF Blogs, I’d buy shares of the F&F 100 Index Fund. If it worked like most index funds, it would be weighted by market capitalization. What that means is that my money would not be spread evenly across all 100 PF Blogs. Instead, shares of each blog would be purchased in proportion to the size of the blog as measured by traffic.

For example, of $1,000 invested in the fund, about $95 would go to buy shares in Get Rich Slowly because it garnered about 9.5% of the total traffic. In contrast, about $3.75 would go to buy shares of the blogs at the bottom of the Top 100. $486 of the $1,000 invested would go to the top 10 blogs as they captured about 48.6% of the total traffic. These numbers are not unlike the S&P 500, where the top 10 holdings represent about 20% of the total market capitalization of the entire index.

So what about bestselling books and popularity contests in high school?

That gets me back to a book I’m reading now called The Black Swan: The Impact of the Highly Improbable. The short answer is that predicting these outcomes is next to impossible, and explaining them after the fact is equally impossible. We convince ourselves that we can explain them because it helps us feel like we can make sense of the world we live in. The problem is, as soon as we think we’ve landed on the correct explanation, we can find other books or other high school students who fit the same profile, but are not on the bestseller list or are not in the “popular” crowd. If only I would have bought an index fund in high school!

A Final Question

To conclude this thought experiment, consider this fifth and final question:

Question #5: Could any of the Top 10 PF Blogs shut down their blog, start a new one under a different name without disclosing their previous, successful blog, and make it back into the top 10?

If you’d like to hazard a response to any of these questions, leave a comment.

P.S.: No PF Blogs were harmed in the making of this post.

Published or Updated: April 9, 2014
About Rob Berger

Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

Comments

  1. KMC says:

    I haven’t read the book yet (it’s on my ‘hold’ list at the library), but I heard a bit about “The Economic Naturalist” where the author talks about what you’ve mentioned (the Black Swan part, that is).

    It seems the human mind is physiologically programmed to find patterns. So when an event happens twice in a row, we irresistibly expect it to happen again. We want to see patterns where none exist.

    Even Nic Taleb isn’t immune. He’s spent his career placing small losing bets on outcomes that very, very occasionally hit. Doing so has worked for him in the past. He expects continuing to do so will work for him in the future.

  2. plonkee says:

    No I wouldn’t put money on the top 10 pf bloggers being able to replicate their success on a relative scale. Certainly I think they could get into the top 100 and I think that they are all pretty good (I enjoy reading most or all of them), but some of it is random luck.

  3. paidtwice says:

    Is it luck or is it talent or both? It is kind of… depressing to think that it is luck and not talent, but at the same time, it makes me hope to be lucky. lol

  4. DR says:

    Paidtwice, it’s both in my opinion. Being a top blogger on any subject takes a lot of hard work, writing talent that appeals to a large audience, and so on. But to get to the top, I do think certain things are required that are outside of the blogger’s control. What are those things? It varies from one situation to another. But it proves the saying that the harder you work, the luckier you become.

  5. Patrick says:

    Interesting article. I think as with everything else luck does play a factor, but I enjoy all the blogs in the top 10 and I think they are obviously doing many things correctly and would be able to replicate much of their success if they started fresh.

    I believe the content on my site is good, but I know that as a blogger, I do not do many other things as well as I could – such as network with other bloggers as much as I should, use social networking sites, design a good theme, maximize use of plugins, program/code, etc. There is a lot more to blogging than just content, though content should remain the most important.

    The good thing is — I am working on all these things! :)

    • DR says:

      I wonder if they could replicate their success with a new blog. My point here is not that successful blogging is all about luck. The top 10 have worked extremely hard to achieve what they have. And they have found ways to connect with many readers. But so much more must come together to achieve such success, and timing is critical. Trying to repeat that same success today given the number of PF blogs would present a formidable challenge.

  6. Jon says:

    Sometimes equal-weight funds may be a better investment choice. Consider this point: In a fund weighted by market cap, as stock price goes up the fund buys more, then as it goes down it sells — buy high and sell low! In an equal-weight fund, you buy more when the price goes down and sell when it goes up.

    Sometimes that would be a bad idea, like when there are many, many risky companies (VTSMX). But in something like the S&P500 or DJIA, where pretty much all the companies are fairly solid, it’s an attractive proposition.

  7. DR says:

    Jon, you make a good point, and it is a limitation of all index funds. Even in a market weighted S&P 500 fund, when number 501 becomes 500, it gets bought and the former 500 gets sold. I still prefer a market weighted index fund, though, because it better reflects the allocation of capital.

    FYI, Jon hails from http://patientinvesting.blogspot.com/ and if you’ve never visited his blog, you should. I particularly enjoy the “dontclickit” link in the right sidebar.

  8. Shadox says:

    Napoleon said: “Give me a lucky general”.

    My uncle, may he rest in peace, used to say: “Better to be rich and healthy than sick and poor.”

    Personally, I think that being lucky, talented, healthy and rich is a great combination. Get all four and you are virtually assured a place in the top 10 PF blogging list… ;-)

    • DR says:

      If that’s the required combination, I guess you can count me out :)

  9. A factor that may play into the success of the top blogs, is that the style in which they are written causes readers to connect with the publisher, either allowing them to identify with their lifestyle or personal finance style as being similar to theirs, or motivating them to duplicate their methods and improve their habits. All of this will tend to cause “word of mouth advertising” or I suppose that would be “link advertising” to happen. People will read what they are comfortable with, and they will talk or write about it. Of course this is only dealing with content, all of the other technical site boosters also have to come together to drive traffic to your site. I do think that content is the most important to keep readers, but I suppose that also depends on what your motivation is for publishing a PF blog.

  10. DR says:

    Radford, you make a good point. From an investing perspective, though, it would be very difficult to predict the winners. If you look at the top 10 pf blogs, however measured, their writing styles vary greatly.

  11. re: luck factor

    I hate the idea that luck plays a major role in the success of a pf blog (or really, any venture). I hate the idea not because I don’t think luck plays any role in success, but because it’s out of our control. And if our successes (and failures) are largely out of our control, why bother playing the game?

    Am I destined to be rich or poor? Famous or forgotten? If destiny holds the final decision, then I might as well just sit here watching TV until destiny figures it out — my guess, however, is that if I’m waiting for destiny to decide, then the outcome is that I will be poor and forgotten.

    I prefer to assume that everyone gets a more-or-less equivalent share of luck (ie., totally random opportunities appearing), and that the difference between success and failure is how to choose to “spend” that lucky opportunity.

  12. pf fanatic says:

    I could hazard a guess that to keep readers, you’ve got to have great content that they can relate to, be inspired or learn from – the blogs that meet those criterias – I subscribe to their RSS feeds. Most of the top blogs that you’ve listed are still top blogs even though you wrote this 3 years ago, the apple cart is still holding firm… so they probably have good content. Although, people do like to flock to ‘popular’ sites and traffic attracts traffic.

    Having said that, there is also some programming skills involved with SEO so most of the top bloggers, even if they were to create a new blog with a new alias, they would probably still find themselves in the top 200 again simply because they understand SEO and what their audiences are interested in.

    Can’t blame it all on pure random luck.

    • DR says:

      pf fanatic, the SEO angle is an interesting one. SEO certainly is critical to those pf blogs that generate significant income. For Get Rich Slowly, however, popularity preceded rankings.

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