November 18, 2002

Understanding The Financial Media
by Marcel Chartier

First and foremost, understanding the financial media means recognizing that they are media. The articles and books I have read on how to deal with the media have always described the media needs as requiring the :

1) controversial, sensational, or at least oppositional (good guy - bad guy, shocking, surprising)

2) emotional

3) simple

So, if you have a controversial, emotional and simple story - it’s a reporter's dream.

The financial media is no different than the rest of the media. So, if a stock goes up 50% - that is what they will focus on, not the fact that is has been down 75% from its high.

Or, they will focus on some exciting, sexy technology company - because the gismo they make is cool, not necessarily profitable, but cool.

Now don't get me wrong, the media provides alot of useful information for the average investor, but not all the information is useful. As a individual investor you really need to learn how to collect useful information. So how do you do this? First, take it in but don't guide your decisions by short commentary, "top picks" or "hot stocks". It’s a muggs game, you will lose, because, for the most part, all you are getting is an opinion regarding a slice of time in the market regarding that stock or situation. Compare this reporting "spot" format with sports coverage. The headline will scream "the Canucks are on a streak" : if you planned your hockey pool on this headline and article, you would feel pretty good about picking the Canucks as the Stanley Cup Champions. If you know anything about the Canucks (sorry Canuck fans) you would know that though they have had some stellar times - they would not be my perennial hockey pool pick compared to other better performing teams. You want to pick a team that has a history of performing with a slate of known performing players. So listen to the sensational spots, pay attention to the names, if you are interested, look into the company (or mutual fund) a bit more. Learn about the company in your own good time, get comfortable in what you know about what you want to invest in.

Also, the other characteristic of the media is to report on the obvious. There is a saying that when Time magazine (Macleans in Canada) has a picture of a bear on the cover with headlines like "Worst Bear Market" it is the end/ bottom of the Bear, because even the average person/media person believes it as fact (the reverse for the highs of the market - Stocks Soar! Good Times Forever!). And the irony is that usually when you see covers extolling the CEO of the year, that company will probably be one of the worst performers later on. Why? because the whole story is not being told. The stellar CEO is stellar because they are usually riding high in a cyclical technology company that has equal lows to the highs .... not usually mentioned in the articles. Usually the article documents how this CEO has taken the company from a low point (the bottom of a product cycle) to todays high point (the top of a product cycle) without any comment on the product cycle. Its like praising the ocean for the peak of huge waves without acknowledging the valleys between them that happen on a regular basis. Nor would the media say that oceans have waves that crest as a matter of course.

Listening to or surfing for financial news and information is so easy now as there are so many sources, but finding good reliable sources is hard. The information is an inch deep and a mile wide, with lots of sources saying the same generic "things" - one of the reasons I decided on creating this site. I would have much rather have found a few sites with less breadth and a deeper focus than the opposite when I first started my investment learning curve. That is one of the reasons my articles aren't the current "item of the day" 500 word commentaries. I want to write about investing as a process over time - I want to focus on the trend and ride out the noise that clouds the music.

The other media format that many new investors get trapped into are message boards and chats... Have to say I never was into chats. Was into message boards for a while. Found it was interesting at first because it was all new and I was hearing about companies I hadn't heard about that sounded interesting. For me message boards were a trap. They stagnated my development because it was like re-learning grade 5 over and over again, and that becomes confortable. Why do message boards get that way? Because new people come to the boards all the time and they ask the same new questions that every one does and every older poster answers the same questions and knows the answers and feels like they know a little more, then some super poster posts something stupendously complex and becomes a guru and others defer to them: or a flame starts and so on and so on. After a few months you wake up and realize you have just wasted a few months because all that you have learned you learned in the first few weeks ... Generally, what you get in the first month or so on a board is what you will get.

Sorting out the information you get is almost as important as the information itself. Evaluate the source: the content and context is all important.