What Investors Can Learn From Brian Williams

Brian Williams has been suspended for six months without pay.  But the media is missing the real news story – perhaps because they don’t want to see or acknowledge it.

The Real Story

The real story is that the exaggerations of Brian Williams are par for the course for all of media. He just happened to get caught.  The primary role of the media is to get viewers to tune in, not to report the news.  They don’t pay their bills on reporting the news, they pay bills on viewership.  They use the news to get us to tune in.  And it’s not just getting us to tune in, it is about getting us to tune into them versus all the other news organizations.  Boring news doesn’t work.  Sensational stories are required.  Many of us have seen the weather reporter in a kayak floating in the streets of some city hit by a flood only to see someone walk behind them and realize the water is only 2” deep. Sensational stories get us to tune in.  The financial media is no different.

Financial Media

The financial media can be more destructive than mainstream news.  The financial media is good at not only getting us to tune in, but it also often influences us to make hasty decisions as they purposely elicit our emotions.  The financial media is all about a sense of urgency and emotion.  Popular financial media uses colors that elicit our emotion such as red and green.*  Why don’t they just use black and white? Because they don’t elicit emotion.  There is a reason for red and green.  In addition, TV media often will invite “expert” guests to opine on the direction of the market or some stock.  These experts are well spoken and sound very credible.  What the media doesn’t let us know is that expert forecasts are correct less than half of the time.  Why not?  Because we would all realize they are trying to predict something that is unpredictable (like the outcome of Roulette) and wouldn’t pay much attention.  I could go on and on.

Influencing Investors

One of the reasons the financial media influences investors so much is because of the availability bias.  This bias states that when we are uncertain of an answer (or future occurrence), we will subconsciously  believe what we hear and see most often is likely to occur and/or is believable.  This is why politicians spend so much money advertising to the undecided voters.  So when we tune into the media and hear the same stories, especially with the urgency and emotion that they elicit, we are influenced to act…to do something.  And usually those decisions made in haste, not thoughtfully or deliberately, turn out to be bad ones.  They may appease us for a short while, but Warren Buffett is not the greatest investor because he follows the news story of the day.

Summary

Brian Williams may have taught us many things over the years delivering the news.  But perhaps this story is the greatest lesson of them all. Understanding the real role of media is a big step to helping us take control of our thoughts and emotions.  Realize that there is a huge incentive to sensationalize a story.  The media is tainted.  We all know that.  But sometimes we don’t recognize how their spin negatively affects our decision making process.  Also, let us remember that when someone is predicting the outcome of some future event, the question at hand is not how well educated experts are or how much experience they have.  The question is whether the event they are predicting is even predictable to begin with.

Do you have any examples of the media going way overboard?  I would love to hear a few of them.  

*By the way, when I started The Emotional Investor and was testing colors and logos, I chose this one because my sister said she didn’t like it.  It made her feel anxious.  Bingo!

 

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