Staying up to date with the major movements in the financial world is a must for all serious investors. But how do we know what stories we should pay attention to?
It’s no accident that almost all of the news we consume is structured in a similar way.
Any journalism graduate will tell you that one of the first things they learn is to follow a specific set of reporting guidelines – basic rules that must be adhered to when formulating a good news story.
These guidelines are based upon fundamental reporting principles as old as journalism itself, like asking the who, what, where, when, and why.
But none are as interesting – or potentially misleading – as the ‘Man Bites Dog’ principle.
Man Bites Dog
It’s an eye-catching title, and for good reason.
The ‘Man Bites Dog’ aphorism serves as a quick reminder to journalists about the type of stories they should be covering. No one cares about a dog biting a man – it’s a common occurrence, so why would you bother writing about it?
However, if you were to write a news story about a man biting a dog… well, there’s a headline guaranteed to grab attention.
It’s an interesting tactic, but try to imagine the effect this has on our decision-making process, particularly as investors trying to critically analyze stock market news.
Becoming more financially literate throughout your life is a crucial part of your development as an investor. However, the ways in which we gather and assimilate our news is important. We need to be able to critically decide what information is relevant to our decisions.
Keeping that in mind, here are a few tips I’ve developed over my years investing to avoid being bitten by business news.
1. Avoid ‘Infotainment’
First and foremost, you need to recognize the difference between news and entertainment.
Financial channels have 24 hours of dead air to fill every single day. They can’t possibly fill it entirely with hard news, so they’re forced to stick some padding in there.
On slow news days, anchors and hosts will desperately try to explain what’s happening in the market on a minute-by-minute basis. This isn’t real reporting however, as no one can really tell what short-term movement the market is going to make next.
But it’s important that these channels portray an expertise and attach a narrative to the daily market movements – otherwise, no one would actually listen to them.
As an investor, you need to understand that a lot of what is being talked about is purely speculation or insignificant developments that aren’t really all that newsworthy at all.
2. Sensationalism Sells
We’ve already established that no one really wants to hear about something as mundane as a dog biting a man.
In the same way, no one is interested in reading about how it’s a normal day in the market. Even fewer want to watch an interview where two rational people agree wholeheartedly with each other. Sometimes, you’d be forgiven for thinking that no one wants good news at all!
Most of what you get on channels like CNBC is hyper-caffeinated hysteria rather than balanced debate. They need a new crisis to talk about every week or else their viewership will plummet. So if there isn’t a crisis to obsess over, they’ll simply invent one.
Sensational headlines sell newspapers and keep people glued to the screen. Learn to differentiate between real news stories and exaggerated headlines – and avoid the latter at all costs.
3. Dig Deeper
The first paragraph of an article might give you a broad summary of what’s going on, but digging deeper can provide you with some much needed perspective.
For example, you probably remember that the world was obsessing over the Dow Jones Index nearing 20,000 points a few weeks ago.
But if you looked a little deeper, you would have found out that this milestone actually means very little as far as the market is concerned. What’s more, the Dow is actually one of the more antiquated indexes and doesn’t reflect the fortunes of the market as accurately as others like the S&P 500.
Of course, most financial publications didn’t see it like that, and they held a vigil over every tiny movement towards that illustrious number, until it finally hit and… nothing happened.
4. Challenge Yourself
In making your investing decisions, it’s easy to find lots of people who simply follow the status quo and agree with what the ‘experts’ tell them. Unfortunately, that’s exactly how we get caught out by confirmation bias.
To make an informed investing decision, you should actively seek out people who disagree with what you think and listen to what they have to say.
You might still disagree with them afterward, but it’s always important to explore the idea that you might possibly be wrong.
5. Move Slow
Financial commentators inject a sense of urgency into everything they say.
They report on the movement of stock prices from second-to-second. They have programs called Fast Money and Squawk Box. They give us the impression that we live in a world where you’re either quick off the mark or left behind.
This is exactly the type of attitude you should avoid. Letting our emotions get in the way of financial decisions is a recipe for disaster.
Before you make a big financial decision, take some time to consider all the potential outcomes, and act only when you are rational and calm. This is your hard-earned money that you’re investing – don’t squander it on a rash decision.
Of course, these tips don’t apply to every single financial commentator in the game. There are plenty of great financial reporters out there, and as you grow as an investor, you’ll begin to learn which ones deserve your attention.
But perhaps most importantly, you’ll also start to figure out the ones you should ignore.