It is no surprise to anyone who knows me that I find very little financial or investment value from the financial media. I don’t see any entertainment value either.
While there are many talented journalists who write valuable and insightful articles, for better or worse the Internet has fragmented things so much that it is virtually impossible for us to distinguish what is fact versus opinion, fact versus fiction, or if something has some sort of hidden bias or narrative.
From my perspective, I can’t see these current trends changing. If anything they will only get worse. In fact, I think these trends are a huge negative and a major distraction for any long term, goal focused, disciplined and patient investor.
Here’s why you should ignore the financial media…
While I could recommend many things, I think the most important point for everyone to remember is that it is a myth that today’s headline news has a direct effect on the financial markets.
The financial media always likes to have some sort of quick “sound bite” or reason why the financial markets are up or down that particular hour, day, week or month. The reality is that no one could ever prove that a direct cause and effect actually exists.
That said, people are generally wired to take mental shortcuts. So if it is easier to understand a complex issue with a simple cause and effect explanation, then most people will go with it. That isn’t good or bad, it’s just human nature.
To illustrate how this cause and effect works, I have made up a headline to demonstrate how current news can be translated into a nice explanation of financial markets movements.
Let’s start off with a drop in the stock market …
World markets roiled on elevated tensions in Ukraine
But what if the markets are up? No worries, just change a few words, but keep the cause the same:
World markets rally on easing tensions in Ukraine
What if the markets aren’t changed much that particular day? How about:
World markets little changed on uncertainty about tensions in Ukraine
Why did I highlight “tensions in Ukraine”? Because you could substitute any number of today’s headlines into the same sound bite or headline.
How about: Slow down in China, Earnings fears, Slowing economic growth, Cash strapped consumers, Overheating real estate prices etc.
Now think back to a few years ago. What dominated the headlines? Fears of Greek Debt, European Debt Crisis or US Debt Downgrade, to name just a few.
The media always follows the same narrative; the headline du jour has caused the financial markets to go up or down. The bottom line is that you should ignore this cause and effect, while it might sound good or even plausible, it simply doesn’t exist.
Why does the financial media do this?
First, I think it is easy to regurgitate the same stock headlines and everyone has come to expect these simple rationales anyway. Second, and probably more importantly, never forget the financial media is there to sell advertising. Not to make you a better investor.
Just like any other business, the financial media needs to make a profit for its owners or shareholders. They do this mainly by selling advertising. The more readers, viewers or eyeballs they receive, the more money they make.
It only makes sense that the expression, “If it bleeds, it leads”, is somewhat timeless.
Why are disasters like accidents, explosions, injuries or death always the lead story? Simple, disasters attract more readers and viewers, therefore more advertising dollars.
The financial media is no different, but its’ focus seems to be either on fear or greed, the more sensational the better. Never forget that there is an inherent bias for the financial media to be negative, sensational or both … it is just dollars and cents.
These points aren’t new. However, they are certainly worth repeating and should never be forgotten.
Are you glued to the business channel, newspaper or Yahoo Finance to see why the market is up or down that day? My advice would be to save your time, lower your stress and go on a financial media diet.
With that extra time, you can do much more productive things like download our latest whitepaper on how proper portfolio structure can make you a better, long term investor.