Do you consume financial and investing news? I do, but I should do less, and I think you should consume less too.
Financial “News” is Largely Entertainment
A lot of financial news, especially the kind you find on TV, is really no different from entertainment. The goal of all TV programs is to attract as many viewers as possible in order to sell commercials. The more viewers, the more money networks can make from selling ads.
In order to get those eyeballs, TV programs need to hook their viewers, and it’s no different for financial and investing TV programs. After all, financial and investing shows are competing for your limited attention with the likes of Game of Thrones, football and all your other favorite shows.
When it comes to personal finances, this is largely a bad thing. First of all, personal finances are not entertainment. In this day and age when most TV programming, including news, is driven by sensationalism and attention-grabbing soundbytes, what are the chances that you’ll be presented with calm, deliberative, actionable financial news. Trade wars, North Korean missiles, there’s always something.
Financial news is often presented visually with a reporter standing on a trading floor while frantic broker-types are doing important broker-things in the background or with talking heads promoting X or Y stock. While it can be entertaining to watch, personal finance decisions should not be made impulsively on the basis of a talking head on TV.
While newspaper and magazine circulations have been on a decline for decades, there are still some significant financial news publications. The Wall Street Journal is the gold standard for print reporting on financial news. Some of the most interesting journalism, like the investigative reporting done by John Carreyou on the fraud perpetrated by Elizabeth Holmes at Theranos, came from the WSJ.
However, when it comes to personal finances, there is a lot of noise and distraction in the print media. The WSJ may be great at reporting about a specific company, business deals or general economic news, but reporting on personal finances is very mixed. Jason Zweig’s weekly column is excellent, but the rest of the content can be spotty.
Financial News is Confusing and Distracting and Rarely Provides Information You Should Act On
Like with TV, print media have ads to sell, which means lots of content needs to be created, and you end up with articles from the same publication that can paradoxically, on the one hand, recommend why value stocks are better than growth stocks while another article will talk about why growth stocks are better than value stocks. It becomes confusing and distracting and leads you to want to take some action and do something.
However, 9 times out of 10, you should be doing nothing and instead sticking with your plan (you made your personal finance plan right?). Without a personal finance plan, you just might be tempted to follow whatever trend or recommendation you read.
Other times, you’ll run into an article that can lead to a fear of missing out. For example, a common type of article that you see is the Top 10 Hidden Gem Stocks or the Top 5 Stock Picks for the upcoming year, usually with one or two sentences about each stock. When you come across these types of articles, keep in mind that a hidden gem isn’t a hidden gem, and you’re not getting any special intelligence on “top picks” if they’re being talked about in the WSJ, Money Magazine or some other major publication. You can pretty much be assured actually that if the article has been published, not only have thousands of other retail investors read the article, other investors, such as professional traders, investment banks, hedge funds and other institutions have researched those stocks well before a financial journalist decided to write about them.
When it comes to financial and investing news, websites can be even worse than TV and print journalism. News websites are the ultimate purveyors of short attention-span sound bytes. They’re constantly changing their content, which is designed to keep you clicking back. General news sites, such as the websites for CNN and Fox News, have perfected this process and give their visitors what they want to see, and the news cycle keeps getting shorter and shorter with almost real-time information dissemination.
The financial news websites are no different. You end up with financial news that may not even be properly reported and lots of articles and punditry providing explanations and analyses for things that don’t need it.
Follow Financial News At Your Own Peril
One of my pet peeves with financial news is the need to try and explain why the stock market is up or down on a particular day. With 24 hour coverage, sites now monitor the stock market on a minute-by-minute basis reporting and conveying information with a purported sense of precision that doesn’t actually exist.
What drives the stock market day-to-day is largely noise and not attributable to a single signal. Sure, big macro events can occur causing an impact on the overall market – think 9/11, fear of a banking system failure or an unexpected rise in interest rates. However, on most days, stocks of thousands of different companies are trading and moving up or down for their own various reasons – trying to create a daily narrative for why the market moved up or down 0.2% on any particular day is pointless. What happens on any given day is irrelevant to your long-term personal finance goals.
Other times, the reporting from these financial websites is just downright confusing. Here’s a screenshot of CNN Business from during the trading day on March 25, 2019 giving me the miraculous, mathematics-defying news that the Dow Jones Industrial Average, an index of 30 large stocks, is somehow both positive and negative at the same time:
Then, there are the times when one day the news site seems to be saying X but on another day is saying the opposite. Below is an example of this from CNN Business (and I don’t mean to pick on CNN Business – this is just the site that I made myself visit a few times over a span of two weeks; I could have easily done this with CNBC, Fox Business or a host of other financial news websites).
As you can see below, a reporter for CNN Business has a post with an ominous headline that the Dow has dropped 400 points and that a recession indicator has flashed red:
However, just 2 weeks later, we get this headline from the same reporter:
So, are we going into recession or is there a remarkable stock market recovery? And, if this stock market recovery is only just getting started, what about that flashing red recession indicator? What in the world are you supposed to do with this information?
So, How Should You Use Financial News?
1) Consume financial news from the standpoint / mindset that it is largely entertainment.
2) Financial news can be great for things like reporting on macroeconomic trends, company and industry news and investigative journalism but poor for quality information on personal finances.
3) Always remember that you have a personal finance plan as your anchor. If you read or see something in the news that intrigues you or gives you the fear of missing out, take a deep breath and consider whether what you read or saw is consistent with your plan. Let that be your anchor when you feel the temptation to put all your savings in Bitcoin/Gold/Tesla stock/Other Shiny Investment when you see the story about the 20-year old who became a multi-millionaire from that investment.
4) Don’t follow the stock market on a daily basis. Day-to-day fluctuations in stock market prices aren’t relevant for your long-term personal finances. They are, however, important to financial media who want you to watch more programs, subscribe to more publications and click on more links.
5) If you consume print media, try letting it sit for a couple weeks before reading anything. You’ll be amazed by how much non-relevant information you can quickly cut through and just read the articles that have passed the test of time.
