Nowadays, it’s pretty much impossible to avoid talk of the markets. There are 24/7 cable channels devoted to investing and business. Here in Toronto, the radio station AM680 does not one, but two dedicated market updates every hour (24 updates a day!) And we haven’t even mentioned all the newspaper and internet coverage. The wall-to-wall talk long ago reached the point of oversaturation.
As investment advisors, we look on the financial media somewhat skeptically. On the one hand, there are thoughtful, informed voices in the media worth listening to. More often than not, however, we’d say the business press can be harmful to an investor’s long-term goals.
Why? Let us count the reasons…
- Financial News is Filled with Predictions: try picking up the business section of a major newspaper and going through the headlines. Chances are that you’ll encounter all sorts of confident predictions, be they from columnists, economists or analysts. You will probably read about the outlook for currencies, commodities, and the stock market as a whole, among other things. Why is this bad for investors? Simply put, there is nothing to say these predictions will come true. And investors who follow the guidance of these supposed gurus can easily be led astray. Here’s a concrete example: there was a widespread consensus that if Donald Trump became president, the stock market would tank. And that prediction was bang on…for perhaps 8 hours. Then the market soared. Someone who sold their stocks believing Trump might get elected suffered ‘bigly’ as the market took off. (Note that we’re not intending to be political at all here).
- The Media is Obsessed with Cause and Effect: every day, there are countless articles trying to explain all the movements in the markets. It’s understandable: the media feels like it has to print something, so it attempts to give a ‘why’ for many of the ‘whats’. For instance, we often see headlines like, “Stocks Slump on North Korean Tensions”, or (the next day, maybe), “Stocks Surge as North Korean Tensions Ease”. Is this important information for the average long-term investor? Not at all. We would even go further, and say that sometimes, figuring out the ‘why’ is all but impossible. Just like the media’s obsessions with predictions, the attempts to link cause and effect can distract an investor from their objectives. Better to keep your eyes straight ahead on your goals rather than become fixated on day to day market movements.
- Financial Journalism is Sensationalistic: Related to #1, the media loves stories about disaster. There’s a saying in general news that, “If it bleeds, it leads” (i.e. gets top billing). We would argue the same is true with investing stories. Imagine there are two articles. The first is titled “Stock Market Could Crash”. The second is headlined “Advisors Recommend Diversified Portfolio”. Which one do you think will make the front page? Clearly, it’s the one about the possible crash, even though we would strongly argue that the other article is far more important for most investors.
Information vs. Entertainment
Truth be told, there’s nothing particularly harmful about investing news in and of itself. So, if you just enjoy following the markets, that’s perfectly fine. Where the media becomes a problem for an investor’s portfolio is if it causes negative behavioural patterns to sink in. If you find that tuning in is causing you to focus too much on the short term and lose sight of your long-term plan, it might be time to tune out.