Devouring The Mass Media
By
Tim Price Jun 09, 2006
Print this article
Every so often, during our trawling, harpooning and gillnetting forays through various media, one comes across what one of our colleagues is minded to call 'a blinding glimpse of the obvious'. Today's blinding glimpse of the obvious, which touches both on the evolving nature of our own commentary and our interpretation of others', comes from How we know what isn't so by Thomas Gilovich (The Free Press, £9.88 from Amazon).
The subtitle of Gilovich's book gives more of the game away: it addresses 'The fallibility of human reason in everyday life'. We may like to think we know 'what's going on' in relation to market developments or other types of 'news'; more likely, what we think we know is actually confirmation of sublime ignorance muddied by a dash of personal prejudice and a liberal sprinkling of flashy salesmanship from third parties with their own attendant biases. Or to paraphrase the US' peace ambassador Donald Rumsfeld, apparent confidence about market direction, whether historic or prospective, merely translates to the hubristic denial of the existence of unknown unknowns.
Gilovich addresses the topic of entertainment, a verbal coinage we would suggest neatly describes much coverage of financial markets in generalist media and supposedly 'professional' media alike. (It also probably describes much of what passes for sell-side research, but we digress.) Try the following. The next time you read or consume <insert your preferred financial journal or channel of repute>, consider Gilovich's analysis of 'entertainment':
'The possibility of inaccuracy obviously increases enormously when the worth of the message is measured by how well it entertains rather than how well it informs.' (Since even the most successful investors would be hard-pressed to identify precisely how 'informative' financial reportage can be, given the fluid nature of capital markets and the interpretation thereof, concepts like accuracy here have to be borne with an acknowledgment of the impermanence of market trends and the gross imperfections of language).
'Our appetite for entertainment is enormous, and it has a tremendous impact on the tales we tell and the stories we want to hear.. the desire to entertain and be entertained can introduce distortion in everyday communication. For this purpose, the most important point could hardly be more simple: The desire to entertain often creates a conflict for the speaker between satisfying the goal of accuracy and the goal of entertainment. The desire to entertain can sometimes be the stronger of the two, putting the truth in jeopardy..
'..But much is said that is not true. Those who work in the mass media face tremendous pressure to put out a product - to meet a deadline, fill an hour, or generate advertising space. Often the demand for suitable material outstrips the supply of factual stories that are novel and interesting, and the temptation to stretch the truth or lower one's standards of objectivity and verification can be enormous. The demand for news is met by an artificial increase in supply.'
Perhaps nowhere is the mismatch between absence of news and glut of commentary supply more pronounced than in mainstream coverage of financial markets. To be fair to Gilovich, in his discussion of the media reporting of news, he isn't primarily concerned with coverage of financial markets, but we are. This brings us to territory that is widely if erroneously viewed as broadly scientific or seemingly 'non-negotiable' but which rapidly becomes dangerously subjective.
Historians refer to primary sources and secondary sources in their analysis of historical events: primary sources are actual records extant from the past (letters, photographs and so on); secondary sources are accounts of the past filtered through the inconstant prism of people writing about events after the fact. In the context of financial reportage, the only ultimately trustworthy source (the primary source, if you will) is price action itself, the market's equivalent of a democratic vote that leads to a discernible event. The secondary source is the news report which attributes often the flimsiest of justifications to the motions of markets after the fact (in other words, beware of post hoc ergo propter hoc). These justifications may or may not be fallacious, but even to debate their provenance is ultimately redundant since publication in a broadly accredited format gives them instant legitimacy in the eyes of the public. This is by no means a trivial point. Tulip Financial Research suggested two years ago that personal finance magazines and the financial pages of newspapers are more influential sources of advice on issues relating to wealth management than private banks, stockbrokers and independent financial advisers. John Clemens of Tulip suggested that
'..more and more very wealthy people have turned away from their traditional investment advisers.. and now use the media instead for investment advice and information.. Newspapers and specialist magazines are seen to be independent and unbiased, and the rich trust and respect the views of their top financial journalists.'
Ascertaining the true impact of the media upon the attitudes and decision-making processes of supposed market professionals would constitute a fascinating project. But it would be extraordinary if supposed fund management and trading professionals put greater store in less highly remunerated media commentators than in the output of their extremely well compensated colleagues. Were that the case, City and Wall Street salaries would face overwhelming pricing pressure downwards, while the best financial journalists could legitimately lobby for a pay rise.
Perhaps the biggest myth about markets is that even within a relatively narrow sphere - a currency, a commodity, a stock - any given investor can be in full possession of 'the facts'. The best we can realistically aspire to is loose familiarity. But, as per Gilovich, that familiarity is vulnerable to the distortions of news media that may or may not possess an agenda but that are fundamentally susceptible to deadline pressures, audience 'entertainment' pressures and other tendencies to deliver selective assessments of causality.
This begs two questions. If successful investing and trading frequently comes down to rugged individualism and often gutsy contrarianism, is the pursuit of successful investing at odds with using 'conventional' media as anything other than a contra-indicator? To use an admittedly simplistic example, what does it benefit the aspirant individualist trader if he consumes the output of any given publication at the same time as tens of thousands of his competitors? To extend this example, looking for any form of tips in a mass-market publication seems like a fool's errand. And given the obvious imperfections of any (subjective) justification for market price action, would many investors and traders be better off by simply and indeed solely utilising technical analysis rather than the fundamentals? We have visited the technical versus fundamental debate before and we will assuredly do so again.
Published in
How to invest
| More
articles
by
Tim Price
Related articles
-
By Phil Oakley, May 24, 2012
-
By Bengt Saelensminde, May 23, 2012
-
By Bengt Saelensminde, May 21, 2012
-
By Tim Bennett, May 18, 2012