Many advisors are aware of media bias and the power of a misleading headline. We don’t tend to read things these days. We skim them. Headlines are as good to our brain as reading a book. They are a CliffNote to the CliffNotes version of the book.
But do we take the same skepticism to information fed to advisors by financial institutions? Do we actually read the fine print and ask the unasked questions that may make the headline dubious? Most likely not – it’s certainly not a natural response. But we should.
Case in Point
The headline and illustration make one thing very clear – we are about to get into an ugly bear market, and here is the evidence.
But look at the small print and you will get an idea how much weight to give this information. If you are looking for a reason we will see a bear market (confirmation bias), you have it here. But if you are seeking facts and evidence of what may happen, this is probably not very reliable.
1. While the graphic goes back in time, it is a hypothetical illustration. That tells us that this model has been backtested, perhaps to show how “accurate” it can be in the future. Anyone can make a backtested model look good. But we invest in the future, not the past.
2. “The Guggenheim model is a new model with no prior history of recession severity and equity valuations.” In other words, this is the first time the model is being tested in real world. Outside of backtesting, we have no idea of how well this model will fit real time data that is uncertain and unpredictable. It may be phenomenally accurate. It may not.
Beware Drawing Conclusions Too Quickly
Our brains live on mental shortcuts. We love headlines and pictures because they allow us to draw conclusions quickly. We don’t have to think nor analyze. That is our default analysis system.
As financial advisors, we need to be sure that we take a step back and ask the tough questions. Read the small print, identify questions that the content producer is not asking. We all want to tell a story, and consciously or not, we will select the information that supports our story and ignore any contradictory evidence.
We can provide more thoughtful advice by recognizing our own biases and preference for mental shortcuts (I have a ton of them). Step back, schedule time in our weekly calendar to think and reflect. When we are too busy doing the daily stuff to think – that is when we are most prone to headline bias.