The Perils of Financial Media Hyperbole
Let’s be honest. The financial media exists to make a buck. They claim that their value is to inform investors…and information can lead to knowledge and power. But you have to ask yourself what does financial media inform us of?
This last week, one of my favorite news sources, The Wall Street Journal, led with a headline that made me laugh. “Dow Suffers Longest Losing Streak Since 2011”. It would be funny if it were in a book of ridiculous headlines, but the Journal was being serious. So that makes it kind of sad. That headline grabs our attention and may elicit emotions of anxiety and fear. Mission accomplished! The media’s primary role is to get your emotions going because that’s what gets us to tune in. Their revenue comes from eyeballs, not helping us make better decisions.
Now, what if the Journal had led with the headline, “Dow down 1.9% over the past two weeks”? That would be ridiculous – no one would care. And yet that is exactly what happened. Yes, the Dow was down eight days in a row, but those daily moves were so minimal that the cumulative effect was a movement we could easily get in a day or two.
Read the Article, Not the Headline
We live in a crazy busy time. We are pulled in all sorts of directions. We, myself especially, are very impatient. If it takes a website more than a half second to load, we get upset. With all this information coming at us, our brains are forced to scan things quickly and rely more and more on mental shortcuts. One shortcut we tend to employ is that of reading headlines and instantly drawing conclusions, which drives the decisions we make. We don’t take sufficient time to read or think critically.
Anyone who read the WSJ article would realize that the headline was a joke. They were filling space…it was nothing news worthy. Yet for the headline reader, it may have enticed them to make some hasty financial decisions, or at the very least start worrying about their finances and whether they should sell.
What’s In It For Me?
Our subconscious, which we rely on for an increasing amount of decision making, is heavily influenced by shortcuts and emotions. In order to improve our decisions, we need to engage the conscious brain. We do this by asking good questions. We need to ask ourselves what the news story of the day has to do with us. What does it have to do with our portfolio? Will it matter in 10 years? By asking simple questions, we get our conscious brain to consider the absurdity of most financial news, chuckle and ignore the story.
And ignoring the financial media may be one of the best pieces of advice I can give any investor.