I have been holidaying for the past two weeks now, and have thus been almost away from thinking about the stock market or accessing any financial media.
In fact, I am currently in one holy city in India, where not many people have an inkling of what the stock market is all about, forget knowing or reading any of financial media. Life is thus good and simple here, largely because people are away from the noise of a big city and its constantly attention-seeking media!
Even I do not have much access to such media here, except when I turn on my laptop. This has given me a lot of time to think about the role of financial media in the life of investors.
I have always maintained that consuming financial media is often dangerous for investors, because almost none of it is good.
But if you are a consumer (most of us are), here are ten secrets I have to share with you on what financial media can do to your mind and behaviour over the long run, and why you must avoid most of it.
10 Secrets of Financial Media
1. Everyone is selling (me too!). Some sell you (mostly bad) financial products. Some sell you the stocks they already own (so when you buy, they get richer). And then, some sell you their investment workshops and newsletters (see above, then below 🙂 ). You must be careful of what you are buying, for most of what is sold here is snake oil.
2. Everyone is biased (me too!). Since everyone is selling something, everyone ought to be biased.
3. Most people you see and read in financial media are more actors than experts , who act to create authority bias. They are well-dressed, speak good English, and throw jargons – all ingredients of drama. And drama sells!
4. Financial TV, newspapers, and magazines often bias their recommendations – either consciously or subconsciously – to favour advertisers. So, their business is not to help you make money, but to get the biggest bang for buck from and for their advertisers. In fact, media is designed to capture your attention so it can continue to receive sponsorship money from advertisers.
5. More than 95% of what you are served is predictions about the future. Ignore them, except for entertainment purposes. If you still want to read predictions, read the ones made 5-10 years ago, and you’ll know why you must not read and believe the current ones.
6. Most of what is covered by financial media is stuff that has already generated high returns in the past. So whatever is predicted is largely based on what has happened in the past. In reality, things do not move in such straight lines.
7. More than you know, media alters your behaviour…and mostly creates bad behaviour. It can often terrorize into changing your well thought out investment plan. Seeing the numbers continue to fly across your screen makes you start to see patterns. There’s actually a psychological term for this. It’s called apophenia – finding meaningful patterns in meaningless noise. So please be careful of what you are reading, listening and digesting!
8. Financial media also causes survivorship bias. It shows only people who are successful and rich or at least who appear to be successful and rich, while avoiding those who applied the same investment strategies but failed (and these are more in number). Anyways, these successful people who appear on business TV make interpretations of why the Sensex moved 100 points lower today, and also predict the future multi-baggers. In short, they reinforce the apophenia.
9. Financial media wants you to live in fear and react to every little hiccup in the market so that you’re glued to their network in order to receive investment advice from their guests and anchors (which again leads to more advertising money for them).
10. Reading or watching a lot of financial media makes you think you have an informational advantage. Not only that, you consider yourself wiser, and ready to dispel financial advice yourself. It doesn’t happen that way. Books with old school, time-tested ideas give you that wisdom, not the drama-ridden daily media stories.
But Who’s at Fault?
Now, after my media-bashing is over, here’s the most important secret I must share with you when it comes to dealing with financial media.
The biggest driver of what media shows is what the audience (you and me) want to see. And mostly, we are seeking like-minded news and views (confirmation bias, you see!). So the media owners, who have an economic incentive to align their content with the ideologies of their consumers, are not always to be blamed.
It’s important for us to look within and decide what’s right for us and what’s not when it comes to consuming financial news and ideas. And the only way you can get time to do that is when you avoid financial media. Almost none of it is good!
But even if you want to continue consuming it, knowing the secrets I shared above will make you a savvy consumer.