The Reason Most Financial TV Is Worthless Noise For Investors

The noise to signal ratio is deafening. JL

Robin Powell reports in The Evidence Based Investor:

For traders, by the time the media reports market movements, they are too late to matter. For investors, the unit of time, a day, is too short to matter. So I was paid for doing stuff that mostly didn’t matter. And market reporting is worse now. With “live” reporting and 24-hour business channels, the constant gyrations have to be made to seem dramatic to get attention. Every other movement is a “plunge” or a “jump”. The noise has been turned up louder. Behavioral economists found investors ‘with the most data did worst in terms of money earned’. "Patient people make better investors because they can look beyond short-term noise.”

I remember asking the Nobel laureate Eugene Fama once about financial journalism. “Journalism?” He replied. “You mean pornography.”

He then went on to tell me about the day he was invited to speak on a financial television channel (he didn’t say which one). Listening to the output while waiting for his interview to start made him feel physically sick. He won’t, he assured me, accept any more invites back.

Now this is a slightly sensitive area for me. I did, for a few months, work in financial news for a major UK broadcaster. Without making excuses for myself or for my former colleagues, there is, in my experience, much more emphasis on British television on business news for its own sake — company announcements, jobs being lost or created, the latest consumer trends and so on.

The US networks are different: there’s much more of a focus on market forecasting, and far more discussion about what investors should or shouldn’t be doing in response to the latest developments.

I’m less familiar with financial TV news in Australia, but judging by an article by Michael Pascoe at The New Daily, it’s not too dissimilar to financial coverage on US television.

As well as writing for the Australian Financial Review, Pascoe worked as finance editor for Macquarie Radio and then Channel Nine.

“I have a confession to make,” he writes. “For a quarter of a century it was my job to provide daily financial market reports of one kind or another. Like all other daily financial markets reports, they were mostly rubbish.

“It was the usual grind of reporting this up a bit, that down a bit, occasionally something up or down quite a lot, once in a while an explosion of some kind.

“Mostly those daily reports were about as useful for investors as what yesterday’s weather was for deciding whether to carry an umbrella tomorrow.”

It’s one thing for Michael Pascoe to admit that he “was paid for doing stuff that mostly didn’t matter”. But he then goes on to make a much bigger admission, that the “noise” generated by the financial media is positively harmful to investors.

“The damage of constant loud noise is that it can scare inexperienced investors,” he writes. “It makes the stock market seem a much more frightening place than it really is. It also can make the more conservative end of the market appear as risky as the speculative end, leading novices to gamble rather than invest.”

I don’t think there’s an easy answer to this problem. Media outlets are businesses, and they need a steady stream of stories and chatter to fill their air time and column inches. As I wrote the other day, sensible investing is really very dull, and if you’re constantly telling people what they actually need to hear, you risk losing your readers or viewers.

Pascoe concurs: “The trouble with repeatedly saying ‘keep perspective’ is that it gets boring. People want to hear or read something different. You get a lot more attention if you shout ‘Australia might have a recession’ than if you say ‘there’s uncertainty about, but the odds are it will work out OK’.”

Ultimately, we need more journalists, like Michael Pascoe, with the honesty and self-awareness to tell it as it is. In the meantime, if you do watch financial television, see it as entertainment — and don’t event think about adjusting your investment strategy on account of what it tells you.

Michael Pascoe: I have a confession to make: For a quarter of a century it was my job to provide daily financial market reports of one kind or another. Like all other daily financial markets reports, they were mostly rubbish.
With a rough end to 2018, and 2019 beginning with more uncertainty than most, market reports are tending to sound a little anxious. That’s not so unusual – the tone tends to be either euphoria or anxiety.
That rollercoaster started for me with covering the old Sydney Futures Exchange when I was at the Australian Financial Review, through being finance editor for Macquarie Radio, then Channel Nine and finally in podcasts for Fairfax Media.
It was the usual grind of reporting this up a bit, that down a bit, occasionally something up or down quite a lot, once in a while an explosion of some kind.
Oh, there was some real drama along the way as major events had impact and when the markets themselves became major events. But mostly those daily reports were about as useful for investors as what yesterday’s weather was for deciding whether to carry an umbrella tomorrow.
Most of those market reports were and are “noise” – they don’t add up to much at all. Just like the first half of the nightly television weather report, there’s perhaps a passing interest in knowing what the temperature had been that day, but so what?
For traders, by the time the media reports market movements, they are too late to matter.
For investors, the unit of time – a day – is too short to matter.
So I was paid for doing stuff that mostly didn’t matter.
And market reporting is worse now.
Taking a daily snapshot of what happened was one thing, but with “live” reporting and 24-hour business channels, the constant gyrations have to be made to seem more dramatic to get attention. Every other movement is a “plunge” or a “jump”. The noise has been turned up louder.

The market will have bad days, and sometimes bad years, but perspective is what matters. Photo: Getty

The damage of constant loud noise is that it can scare inexperienced investors. It makes the stock market seem a much more frightening place than it really is. It also can make the more conservative end of the market appear as risky as the speculative end, leading novices to gamble rather than invest.
I feel a little guilty about the noise I contributed over the years. Sure, there were column inches of newsprint and broadcast minutes to fill.
“On the Australian stock market today, nothing much happened, so it’s back to you for sport” wouldn’t have been acceptable.
Guilt about the noise is perhaps why I now tend to concentrate on trying to get people to keep perspective about our markets and economy, to take a longer-term view.
For an investor in or outside of superannuation, having the appropriate mix of assets and patience about outcomes is more important than knowing what the market did today or this month or year.
Yes, the December quarter was a downer for investments. That happens from time to time. The March quarter might or might not be, too. Markets can’t always go up. But if the underlying assets in a diversified portfolio are fundamentally sound, the good quarters end up outweighing the not so good.

Stories about crises and booms will always attract the most attention.

And as covered in farewelling 2018, the main headline measure of what our market is doing, the ASX 200, is misleading anyway. It’s the accumulation index that really tells the story – and it’s a more reassuring one.
The trouble with repeatedly saying “keep perspective” is that it gets boring. People want to hear or read something different.
You get a lot more attention if you shout “Australia might have a recession” than if you say “there’s uncertainty about, but the odds are it will work out OK”.
What’s more frustrating is that a scary story finds it easier to do repeat business than a story about keeping perspective.
For example, the vast majority of economists can’t see a recession on our horizon – challenges, yes, a recession, no. But that majority will get far less media coverage than one or two individuals prepared to forecast something more alarming or outlandish.
Remember Steve Keen? A decade ago he forecast Australian house prices were about to fall 40 per cent and unemployment would jump to 20 per cent. His forecast was everywhere as he was given credulous coverage by 60 Minutes and the ABC and all points in between.
The forecast was obviously nonsense at the time, but that didn’t stop the media lapping it up. Fear sells.
Professor Keen is visiting Australia again this month and will no doubt be given media opportunities to forecast more doom and gloom – and the coverage again is likely to be uncritical. Fear still sells.
By comparison, AMP chief economist Shane Oliver compiled a list of “The Nine Bad Habits of Highly Ineffective Investors” two years ago. It would be a fine service to publish it every year to remind investors of their potential mistakes – but nobody publishes the same story every year, unless it’s a particularly scary one.
It’s a wonderful list. Each one of the nine points deserves an individual column. Come to think of it, this column has pretty much been about Oliver’s bad habit No.6: Looking at your investments too much.

A study found being hyper-informed about investments didn’t make people more successful investors. Photo: Getty

“This sounds perverse – surely checking up on how your investments are doing is a good thing? But the danger is that the more investors are exposed to news around their investments, the more they may see them going up and down – on a day-to-day basis it’s close to 50-50 as to whether the sharemarket will be up or down.
“This ‘noise’ can cause investors to freeze or, worse still, it feeds on our natural aversion to any reduction in the value of our investments and thus encourages a greater exposure to lower-returning, safer investments.
“As a 1997 study by US behavioural economist Richard Thaler found investors ‘with the most data [about how their investment is performing] did the worst in terms of money earned’.
“The trick is to have patience (evidence shows that patient people make better investors because they can look beyond short-term noise or are less inclined to jump from investment to investment after they have already run) and turn down the noise.”
That’s what we’re trying to do at The New Daily. Provide perspective, provide useful information about the big picture and cut through that damned noise.