Doomsday commentators in mass media have minimal value in investing strategy
Originally published in Business Pulse Magazine Fall 2016 issue.
Today the world is full of professional market commentators sitting on the edge of their seats waiting for the ideal moment to share their “ultimate wisdom” (note sarcasm). When our financial markets sell off from a negative event, such as the Brexit outcome in Great Britain last June when it pulled out of the European Union, a particular set of doomsday market commentators come out of the woodwork.
Doomsday commentators on finance and business are the most egregious because they appear only when the story meets the pre-subscribed narrative they seek to hustle. Hyper negativity is good for TV ratings, but there is always more to the story.
The untold story about doomsday commentators is that their track record is very poor. When their intended business is to scare you they only need to be right once. After that they can run around the countryside selling books and speaking engagements telling you, “See, I told you so.” And that’s regardless of how many times they have been wrong.
With all the recent uncertainty of events such as Brexit and the U.S. presidential election campaign a lot of the general public becomes uneasy about all the unprecedented events we face in the future – real or imagined. When news breaks and shakes up the financial markets it’s natural to turn on the news for understanding and comfort.
The real question: Do commentators add any value in the investment process, or should we treat the flamboyant rhetoric simply as entertainment? Since we never know exactly the full story on someone’s bias, it’s best to assume it has more entertainment value than any definitive action plan.
The truth, if there is one, usually lies somewhere in the middle – the same way the markets are made up of a combination of Bulls and Bears. Investing does carry some risks and as we have seen in the past, unfortunately, anything is possible.
However, when you have a defined investment plan, if a negative spike occurs you can avoid professional doomsday talking heads and enjoy a nice slice of humble pie in the meantime. Financial news, commentary, and opinions offer little value in the investment decision-making process. It’s too erratic to be trusted.
A lot of what we hear and read is emotionally-driven, sensationalized stories – and we’ve talked about the emotion of investing in this space previously. Further, I remind clients all the time that particularly when you are reading something in a newspaper it is old information.
Given the world we live in today the ability to disseminate news and opinion is easier and faster than ever. We each have the ability to freely and cheaply share our opinion around the world to all who are willing to listen. Content aggregators such as Facebook, Twitter, and major news media outlets have made the business of news and opinion big business.
Whether it’s CNBC, Fox Business, Bloomberg, Forbes, etc. (the list is huge) their objective is to grab your attention with catchy and sensationalized stories and articles. They latch onto your emotions to either keep watching or reading, and therefore view more advertisements. Financial news and market commentators care only about their own interest. The decisions on what stories to air or write up will be based on the amount of potential ad revenue.
As a believer in the free market I have no problem with companies operating this way, per se, but as a fiduciary to my clients I know the information carries a bias. Regardless of whether it is a cable news network or news website they want you to feel they are making you a smarter investor by presenting different perspectives.
What is not so obvious – in fact, often subtle (even subliminal) – is the conflicts of interest involved. Pay to play.
We each have our own opinions based on different experiences, convictions, and beliefs. Just maintain confidence, with help from whoever you trust to advise you on your investing, that yours are just as valuable and valid as the doomsday commentators on the air waves.