I am working on this week’s WaPo column, based loosely on last week’s open thread on the value of the Financial Media.

I have a 23 bullet points I am trying to cut down to a dozen or less. Here are two:

Too Much Noise, Too Little Signal:  The biggest problem most investors encounter is the sheer volume of the stuff. There is a vast sea of news items, most of which are meaningless to your portfolio. The vast majority of news items, earnings reports and economic releases are irrelevant to your investments.

I call this my Who Really Gives a Fuck about ISM? theory.

Any given company can have a better or worse earnings report. Any economic data point can be better or worse than expected. This is simple probability. The range of potential outcomes that are consistent with normalcy include both strong and weak data. Get used to it.

Learn to tune out the irrelevancies and stay focused on the big picture. Speaking of which:

Over-Emphasis on Short term: The politicos have a 24 hour news cycle; finance has a cycle of its own. Each quarter, earnings reports are released. (This also includes the pre-announcements period). Every month, we get numerous major economic reports: Employment Situation, GDP (and 2 subsequent revisions), New and Existing Home Sales, Leading Indicators, Consumer Sentiment, Retail Sales and Durable Goods Orders, etc. Every week, we get Jobless Claims, different treasury auctions, other minor reports. Part of the reason there is so much financial media is that every day, there is something different for people to write or speak about.

The simple truth is that most of these data points matter very little to the long-term health of your investments. What matters is the longer trend, and its occasional breaks and reversals. Everything else is filler.

This is the early draft; the Washington Post version will be far less coarse; their editorial policy is no F-Bombs . . .

 

Category: Apprenticed Investor, Data Analysis, Financial Press

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

19 Responses to “The Problem With Financial Media”

  1. ilsm says:

    As when Kudlow says: ‘We know cutting spending makes the economy grow….’ on or about 4 Oct 13!

  2. ByteMe says:

    The 24-hour news/entertainment show has a different set of priorities than your average investor, although they try to sound like they have the same priority. The 24×7 media’s priority is to keep you from changing the channel so they can sell more ads to show you and make more money for themselves. The average investor just wants to feel like they know more than other investors in their circle of peers.

    News used to actually be about news. Now it’s about entertainment but they keep lying to us by calling it “news”. Part of that is because the news time on TV went from 2-3 times a day for 30-60 minutes to non-stop on 15 channels. There’s just not enough important stuff happening in the world to keep you entertained, so then they had to bring in “newsmakers” to weigh in on the news with their opinions. But that wasn’t enough to keep you entertained, so then they brought in fake conflict, crazy sociopaths with loud opinions, and — every now and then — a “wardrobe malfunction” to make sure you were watching.

    Reporting that’s on a weekly deadline tends to have more time to separate the noise out of the signal, so it’s not as bad.

  3. A says:

    Perhaps it would be a good idea to look at this subject in a broader context: the problem with media in general. As businesses, they cater to what their customers ‘demand’. And if it’s shit they want, it’s shit they will get. The media certainly delivers on this promise. As an example, while most people would be better off reading Warren Buffett, it’s seems to be ‘fun’ being entertained by Jim Cramer.

    Where there are sheep, there will be shepherds.

  4. Chad says:

    I like both, but “Over-Emphasis on Short term” should definitely be kept. This is far too prevalent in every part of our society and economy.

  5. zell says:

    Not trying to be oppositional but does financial media have any value? Seriously? If Fama and Shiller aren’t on the same page what are we talking about? Financial media does have value to the financial media and there’s the problem filling air time, spilling ink. Otherwise why not follow the herd- study herd behavior. Sorry.

  6. spencer says:

    I agree almost completely with your comments on data and any differences probably would be insignificant.

    From that point of view the most important thing for a portfolio manager or strategist or economist is to quickly identify trend changes with a minimum of false signals. If you are using mechanical filters on the data you would be surprised how many false signals a data series that looks great can generate. There is an inherent trade-off between timeliness and stability.

    The markets focus on the monthly report versus consensus expectation is just noise trading designed to generate trading volumes — the single most important factor in brokerage house earnings. It seldom identifies a trend change.

  7. Internet Tourettes says:

    I’d add a bit about the political commentary that is injected in to the coverage which oftentimes conflicts with basic economic tor financial theory. Also, a lot of the guest commentators (yourself excluded) offer little but volume and drama as opposed to actionable information and considered opinion.

  8. louiswi says:

    The reality of media today is that programming is designed to generate content that gets you to the next commercial. Commercial content is what it is all about. Content can be audio or visual. How do you think the slutty looking announcers on Fox came about? Appealing to your prurient interest to get you to the next commercial is just good business sense for the provider. Getting the “10 best stocks to buy for a lifetime” is news that draws a big crowd and its hard to resist such a clarion call. For the investor, this content has zero value. Again, the value is zero. Zip. Nada. Nothing.
    If it has been a waste of time (and that is the conclusion most folks finally come to),watching financial news is the viewer’s fault. No one else’s.

  9. 4whatitsworth says:

    Just call it what it is.. “Financial entertainment”. Most of the Bozos on TV just cater to what their audience wants to hear and have repeated the same opinion based B.S. (A.K.A The noise) so many times that they believe it themselves.

  10. rj chicago says:

    “Too Much Noise, Too Little Signal”
    Or as Peter Gabriel wrote in a song not long ago – “Signal to Noise” – herewith:
    “Signal To Noise”

    you know the way that things go
    when what you fight for starts to fall
    and in that fuzzy picture
    the writing stands out on the wall
    so clearly on the wall

    send out the signals deep and loud

    and in this place, can you reassure me
    with a touch, a smile – while the cradle’s burning
    all the while the world is turning to noise
    oh the more that it’s surrounding us
    the more that it destroys
    turn up the signal
    wipe out the noise

    send out the signals deep and loud

    man i’m losing sound and sight
    of all those who can tell me wrong from right
    when all things beautiful and bright
    sink in the night
    yet there’s still something in my heart
    that can find a way
    to make a start
    to turn up the signal
    wipe out the noise

    wipe out the noise
    wipe out the noise
    you know that’s it
    you know that’s it
    receive and transmit
    receive and transmit
    receive and transmit
    you know that’s it
    you know that’s it
    receive and transmit
    you know that’s it
    you know that’s it
    receive and transmit

  11. dark1p says:

    I think an important point is being missed. Is the sports media wrong for blowing every tiny event and blip out of proportion to a sport’s season? Or the sport’s long-term history? Is the general news media wrong for reporting every train wreck in Europe or typhoon in Asia or mass shooting in the U.S.? Yet, given the ‘long term’ view, almost all of these details are incredibly unimportant in terms of history. I remember seeing news reports about the Boston Strangler growing up. It was a big deal. Today, I doubt that 95% of people under 50 even know that media-generated nickname.

    The point is, media is media. It exists to sell advertising (even PBS depends on sponsors who underwrite shows). It’s all about ratings, and copies sold, and web pages viewed and time spent on same. If the news media were really first and foremost concerned about news, would they focus on a sensational murder trial for weeks on end? Or fawn over the birth of a new British prince? No. They’re giving people what they want to see. This is why Americans, for example, know almost nothing about what’s happening in the world (until American forces or citizens are directly involved).

    The financial media is precisely the same. They are not here to present an overview and perspective based on the long view. It’s the day-to-day occurances that fill air time and column inches. People actually want to know about events as they happen, even if in the long run, they don’t matter. (“In the long run, we’re all dead.” ha ha) What in God’s name would the media say if what we’ve come to expect as ‘news’ was confined to ‘here’s what matters in the long term?’

    You want sound financial planning advice, you hire somebody or practice the necessary discipline. This isn’t and never has been the mission of the financial media, so calling them out about it is basically a meaningless exercise. It’s like criticizing a dog for pissing on a fire hydrant, don’t you think? What else are the media going to do, just go out of business? Or tell us that what they’re telling us is completely unimportant?

    • the pearl says:

      Great take. Those complaining about the financial main stream media are demanding something from the financial media that it will never provide, cannot provide, and has no desire to provide. CNBC is not suddenly going to start broadcasting segments on the efficient market hypothesis, valuing companies like Graham and Dodd, or the pros and cons of indexing and rebalancing. They would be out of business in a week. The viewership will disappear. The people that watch CNBC are not concerned with becoming good investors, they are concerned with getting a rush and watching morons like Rick Santelli yell at the camera and reinforce their already held political beliefs. CNBC knows exactly what it is doing. In a rational world, Cramer would be selling hot dogs on the boardwalk somewhere. Until somebody audits and publishes Guy Adami and Joe Terranova’s trading performance I will just click over to Bloomberg to check out Trish Regan’s outfit for a few minutes and switch the channel to reruns of Andy Griffith. Even the decent shows or segments border on the absurd. Hell, Tom Keene flows into the bond and futures quotes like Glenn Beck transitions into one of his promo pieces. You think the world was coming to an end.

  12. Greg0658 says:

    a job is a job .. an experience to pass a minute – many times a lovely one – world travel & tax deductable (for some) .. a bone to nourish off of

    if JoJo’s quote were only true – “a waste is a terrible thing to mind”

  13. RW says:

    Financial media suffers from several rather fundamental mismatches between their profit incentive(s) and their audience. First is time: Like many corporations their horizon is short, very short; second they are essentially sell-side with all that implies; third even though they superficially seem oriented to wealth creation their bias is strongly towards existing wealth and those who already possess it. Among other problems this fosters a narrative that listeners should emulate the wealthy but the tools and tactics available to wealth including the ability to buy time or influence are generally not available to hoi palloi.

    Not sure if this is tangential to the main thrust of your article but I think this is one reason the reporting on economics in general is also pretty dismal: What is not completely wrong (e.g., Robert Samuelson) is usually skewed; for example,

    “…We pay twice as much per person for our health care as the average for other rich countries, with nothing to show for this money in terms of outcomes. We pay 2.5 times as much as the UK. If our costs were at all in line with those in other wealthy countries, we would be looking at explosive budget surpluses running into the trillions of dollars annually.

    This fact raises the obvious question, why are projections of deficits based on unaffordable healthcare costs always treated in the media as a basis for cutting benefits to seniors rather than a reason for cutting payments to providers like doctors, drug companies, and medical device companies?

    There is no explanation except the bias of the media. Obviously they identify much more with rich doctors and the people who profit from the bloated prices charged in the United States by drug companies and medical equipment providers than with the seniors who are dependent on Social Security and Medicare.” -Dean Baker

    It’s a matter of priors, assumptions, and financial media generally displays priors strongly biased towards existing wealth and power.

    NB: One of the reasons I think there is a fair amount of moralizing on economic issues is the prior that wealth is prima facie evidence of virtue: the wealthy didn’t just earn it they deserve it (even if inherited) and everyone should emulate them or at least show due respect for their accomplishment.

  14. kcowan says:

    I think we need to answer the question: What is the audience that the media are trying to reach?

    We know that the professionals are served by various blogs. So is it trying to reach a general audience? If so, it will never satisfy the serious investor. Their behaviour seems to suggest that they are aiming for a general audience. Does anyone actually watch a show, or are they just having it play in the background so that they can focus on some tidbits of interest?

    So what are tidbits of interest?

  15. Alex says:

    I think there is another problem here, which I I think is important to mention. It seems to me that most financial journalists have become co-opted by the commercial organizations (big banks) they encounter, so there is always this pervasive panglossian bias that they are doing what is best in the best of all financial worlds. So we get silliness like JPMC’s billions in compliance fines being just another cost of doing business.

    The better financial journalists know how to at least occasionally challenge the big banks and pundits. But CNBC seems to have entirely lost all ability to evaluate the narrative and has turned itself into one big financial infomercial.

    I think there are a couple big reasons for it, which might strongly bias most anyone. A lot of what is being reported is quite technical, and the reporters lack the resources to really objectively evaluate it. So while they sometimes try to get a couple of opposing view-points on the show, they really NEED the big banks and pundits to deliver the news for them or they will not have anything to say. And all of this is made much worse since these television shows are on 24-7. They just don’t have time to evaluate.

    To keep the content up with these constraints, I think they have just decided to effectively hand the mike to the people who they are reporting on. Thus I often feel like I am watching the home shopping network when I am watching CNBC. “For only 19.99 plus shipping and handling, we have this equity with a fantastic story….!” blah blah blah.

    That is why I don’t watch all this nonsense. I like to read columnists and bloggers that reflect and challenge constructively.

  16. mpetrosian says:

    I’m looking forward to this WaPo piece, but there are plenty of other things to be discussing. CNBC is like junk food. It makes you fat and stupid and does all kinds of messed up things to you. It’s not going anywhere and we still eat it sometimes because it tastes good or entertaining or whatever. If every news channel sounded like TBP and everyone ran a low cost well diversified rebalanced ETF portfolio and everyone managed to slay all their cognitive demons, and everyone understood Apple, the world would be a terribly boring place. Other kinds of problems would emerge and the Barry’s of the world would crusade to find a better way. 99% of the time I walk past the junk food isle on my way to the vegetables, but once in a blue moon I get high as fuck and grab that bag of Funions.

  17. lburgler says:

    I think the obsessive-compulsive autistic news cycle is a result of a couple of things:

    1) News organizations firing most of their reporters, resulting in the need to do more with less, i.e. rehash the same old shit over and over

    2) Years of inadequate investment in education in the United States, leading to a smaller and more hostile intellectual class, which is unable or unwilling to fight for the news organizations’ survival

    3) The epochal rise of the autistic alienated subject, whose self-worth is increasingly understood in terms of liberty, the more the material conditions for liberty actually decrease. The subject today recognizes that something terrible is coming, but is fundamentally powerless to digest it. Unable to heal the trauma, the subject continuously picks at his/her wounds.