I have, at this point, gotten used to watching most people’s eyes glaze over when I start talking about what I do at parties. After all, in most circles, “finance” is shorthand for “agonizingly boring,” making my life as a financial writer particularly tricky.
In writing, TV, and any other media, you have to start by finding an audience, then continue to keep them interested and engaged on a regular basis. When it comes to the news, there’s also an obligation to present the most relevant information and help your audience contextualize it. This is a dynamic that’s as old as Hearst. However, financial journalism is a little different.
The common news media tropes like fluffy celebrity news or grave warnings about the terror in your home that could kill your entire family – “details at 11!” – might make you roll your eyes or goad you into tuning in against your better judgment, but they rarely do any real harm. When similar tactics are used to grab your attention in financial journalism, you could be steered into making financial decisions that do real damage to your portfolio and overall financial future. So, what should one keep in mind when perusing a financial news site (like this one)? How do you navigate the constant churn of information promising a complete picture of the markets in a way that serves your portfolio instead of becoming a captive for a 30-second ad spot?
Confidence Can Often be a Red Flag
The first thing to remember when examining which voices in the news to give weight is that economics and finance are, by definition, extremely chaotic. With so many different factors at play, predictions regarding the movements of the market are notoriously difficult and frequently wrong. As Peter Lynch observed, anyone picking stocks and hitting six times out of 10 is doing a great job. Yet, so many financial observers on television or the web portray slick confidence and unflappable certainty. So what gives?
Simply put, bold picks make good television – even if they make little sense. Qualifying one’s answers, providing context, and sticking to soft predictions may be the hallmark of a person being realistic about just how hard it is to predict the stock market, but it’s not exactly red meat for television viewers. Nor does it help build the sort of personality one can use to sign up newsletter subscribers or grab endorsements. Though the obnoxious, blustery commentators may get you watching in the first place, acting on their half-baked advice can wreak havoc on your portfolio.
Beware of Bloggers Bearing Trading Advice
Now there are plenty of people out there who both know a great deal about financial markets who can also write in a way that’s interesting and engaging. I’d argue that quite a few of them write for this site. However, it’s important to remember two things:
1. Of all the skills that make for a solid financial writer, strong writing ability is the only one that’s absolutely essential.
2. People who are really good at predicting outcomes in the financial markets generally don’t feel compelled to write about it – they’re too busy making loads of money.
If you can make good stock picks, odds are you won’t have many chances to keep updating your blog, what with your enormous piles of money to look after. Warren Buffett, for instance, has demonstrated himself to be a marvelous writer on the occasions when he’s taken the time to write. He doesn’t, however, find the time do so more than a handful of times each year. Perhaps he loses his typewriter in one of his enormous piles of money.
If it Bleeds it Leads
A study by Kenneth R. Ahern and Denis Sosyura from earlier this year laid out precisely how the incentive to boost traffic and readership can affect the coverage of merger and acquisition rumors in financial media. The study, which considered hundreds of articles that included some mention of a rumored buy-out bid, found that these rumors rarely proved accurate in the long run.
More troubling, though, was the discovery of a strong correlation between the target company’s profile in the media and the likelihood of a rumored acquisition getting published by a reputable news entity. Rumors about buy-outs are obviously among the stories that get the most attention, and that’s doubly true if the company that’s supposedly on the verge of getting purchased is one that’s more likely to pique the interest of the general public because it’s a “sexy” brand like Apple (AAPL) or Uber.
The study paints a fairly clear picture. It appears as though, in an effort to scoop competitors and grab more readers, prominent publications are quick to offer up certain types of news stories, seemingly regardless of their accuracy. Certainly, without complete knowledge of the sources of the rumors it’s impossible to offer a complete critique, but it does seem clear that the motivations driving newsrooms aren’t always purely to educate the public.
Explanations Abound, Even When They Don’t Make Sense
Look, I get it – financial journalism is a really, really hard job. Economics is wildly complicated and composed of billions of different moving pieces. But that can make the urge to heavily rely on journalistic crutches like blatant sensationalism.
Take, for instance, these October 1 market wrap up articles from Forbes and Reuters. Both among the most prominent in financial news organizations, they attribute the day’s losses for the major stock indices, at least in part, to Ebola fears in the United States. It’s a pretty standard article, most major news organizations run one every day.
Yet, upon closer inspection, both of these are utterly absurd. What’s more likely: that investors were really engaged in a broad selling run on equities because of two instances of Ebloa in the U.S or that Ebola is an easy, eye-catching headline for an otherwise dry, wonky headline? To paraphrase a common news cycle trope, the answer probably won’t surprise you.
I wasn’t alone in noticing this particular instance. Austin Galt of The Market Oracle laid out a fairly clear case for why the movement of the Dow Jones Industrial Average on that particular day could have been explained a variety of ways, particularly when one considers how the market rebound that followed soon after occurred in the midst of even greater Ebola hysteria. And Ed Butowsky of FOXBusiness was even more pointed. “There isn’t a single relevant professional in the financial world who believes Ebola was behind the recent downturn,” he wrote. “The proof is that Ebola is still out there, and the market is heading north again.”
Yet trouble is, it’s easy to make a tenuous correlation like this, but very difficult to disprove. After all, the direction of the major indices on any given day involves millions of transactions and billions of shares of stock trading hands. Actually understanding what motivated each individual seller is all but impossible.
We all want to believe that organizations as prominent as Forbes or Reuters are doing at least some homework, calling up sources close to the market for comment. Yet, since no one can really do the sort of rapid and comprehensive polling to really determine how much of which buying and selling was motivated by what causes, we’re left with articles that have to take their best guess and run with it. Meanwhile, without the Ebola hook, their alternative headline would be “Markets Down, Reasons Mixed/Unclear.” Not a headline that’s going to go viral any time soon.
Use Multiple Sources and Be Skeptical
I realize I’m painting a pretty bleak a picture here, but it’s not all bad. In fact, even though the short-term gains of sensationalism are hard to pass up, the fact remains that the best way to really build an audience as a news organization is to build trust through strong reporting and considered opinion. That’s what we try to do here at www.equities.com, and it’s what we expect from our contributors.
It’s also important to note valuable information isn’t necessarily the enemy of entertainment. Plenty of the most engaging voices and personalities out there are also offering up valuable, measured market insight. So what is an investor to do?
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Approach every source with skepticism. Even commentators you’ve found to be consistently excellent can fail in spectacular ways. Don’t trust, explore. Maintain a healthy dose of skepticism.
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Understand incentives. This isn’t the same as saying you should ignore anyone with some conflict of interest. If a market commentator is touting a stock that she’s also long in, it could mean she’s just trying to create buying pressure to boost her investment. But then again, if she’s upselling a stock without owning it herself, isn’t that also a cause for concern? A measured approach is important, but one should always keep in mind what motivations people might have. Someone selling you on their newsletter has to get you to believe their advice is worth the money you’re paying for it, but that doesn’t mean that their advice is unsound.
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Find conflicting sources of information. As with anything really complex, two entirely opposite opinions can both be entirely justified. That’s why looking at both arguments can often be the quickest path to a more complete understanding. Two conflicting opinions can each be pretty flawed, but when you take the best of each, it can result in a relatively complete picture that’s superior to each perspective taken alone.
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Know your trusted sources. Certainly, no news organization is perfect, but there are a few that have a history of holding themselves to certain standards of journalistic ethics. Most of the newspapers that have actually survived into the internet era have done so because they offered up an authoritative voice that held themselves to certain standards. The New York Times, the Wall Street Journal, these are organizations that hire experienced professionals and invest a lot of resources into collecting information. And it shows. Even the highest-quality news sources can fall on their face at times, but you can generally expect that the best will do a relatively strong job of presenting information in a manner that is complete, objective, and provides valuable context.
- Always supplement with a wide variety of sources, but it’s a pretty solid decision to start researching any story with the Associated Press of Reuters and then work your way out from there.
In general, just be wary. Your attention holds a lot of value, and plenty of people in financial news are ready to bend the truth to keep your attention. That’s why I alone have all the answers that will take your portfolio to the next level and make you the sort of market master you’ve always wanted to be. Perhaps you’d like to subscribe to my newsletter to learn more of my mystical market insights?
Kidding.
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