Why it may not pay to watch the news
December 13, 2017
Senior Relationship Manager, Balentine
It was a daily ritual. After the shows ended, we, the producers and on-air personalities, decompressed. Typically, this involved games, jokes, and activities wholly unrelated to financial news. We tossed footballs, competitively played Jumble (a scrambled word game), and smacked foam golf balls with clubs around CNBC’s expansive cubicle farm. We needed this time, as it was a natural byproduct of the stresses involved in creating three hours of live television during the morning’s wee hours.
Subsequent to decompression, we looked ahead to tomorrow, trying to forecast the key economic and earnings reports, corporate stories, and general themes likely to shape the news. We huddled for an hour in a conference room above CNBC’s studios in Englewood Cliffs, NJ, to pitch story ideas to Squawk Box’s executive producers.
I will never forget a meeting in March 2005, during what eventually became a meaningful rise in the price of oil. Goldman Sachs had called for a “super spike” in prices to $100 per barrel. With oil trading at $50 at the time, this was quite a call. As television producers, we were charged with envisioning the ramifications of this alternative reality, thinking through all possible storylines; creativity was encouraged. One by one, we pitched segments ranging from the potential effects on retailers to the inconveniences associated with increased mass transit usage. With few exceptions, our ideas were greeted with the same banal reply from our superiors:
This turned out to be a pivotal moment as I contemplated my future in television news broadcasting. I was 29 and becoming increasingly aware of the conflicts associated with my craft amid the rise of the internet and a concurrent decline in TV ratings. I had entered the industry six years prior with the purest of intentions—I was genuinely interested in the financial markets, and I believed CNBC, in particular, was one of the few places people could go for smart, actionable information regarding their money. I was right, but only to an extent.
To be clear, CNBC and its competitors do their best. The rank and file are generally great people full of ambition and eager to learn. The senior producers, executive producers, and other higher ups are also well intentioned, albeit more cynical. At the end of the day, however, news is a business like any other, and news organizations have a product to sell. While I initially thought a network’s success was measured by the degree to which it informed its viewers, I soon learned success was actually measured by the eyeballs it was able to attract and retain. And in order to attract and retain more eyeballs, networks are increasingly less concerned with substance. As one industry veteran often quipped, “Less steak, more sizzle.” Hence, a rise in sensationalism.
If ever there was a year showcasing the growing disconnect between media and markets, it would be 2017. We, as consumers of media, have been inundated with nettlesome headlines related to (in no particular order) politics, natural disasters, social matters, geopolitical tensions, race relations, special investigations, congressional legislation, gender equality, sexual assault and harassment, corruption, etc. The issue is exacerbated by the explosion in new forms of media and the methods through which we ingest information. It is exhausting, and I am sure the sociological and psychological effects of the increased negativism in our lives will be the subject of debate for decades to come.
The financial implications are easier to calculate. A January 2017 Wall Street Journal article reported that billionaire investor George Soros had lost $1 billion on bearish market bets resulting from Donald Trump’s surprise election victory. At that point, the U.S. stock market had risen 9% post-election, and it has added nearly 20% since. Soros notoriously supports Democratic candidates, and it’s safe to assume his political bias has influenced his financial decision-making.
Who can forget the concerns over Greece’s debt in 2015? If we’re honest, probably most of us. Yet at the time I fielded innumerable calls from clients who were dismayed by reports regarding the number of backyard swimming pools in Athens and the potential contagion (a favorite media buzzword) effects of a “Grexit.” Fears of a “Spexit,” “Portuexit,” and “Itexit” were subsequently reported with fervor, and investor angst was heightened as a result.
Bubble forewarnings are the Shangri-La of the financial press. Since the 2008 crisis, we have read about potential bubbles in bonds, stocks, ETFs, student loans, real estate, college tuition, and most recently, Bitcoin. The list goes on.
As a Balentine Relationship Manager whose primary role is to keep my clients focused on their long-term goals, sensationalist news is among my largest obstacles. This has been a year of intense media coverage, most of which has been predictably negative, yet the U.S. stock market is poised to produce double-digit gains. Bonds have favored well despite years of valuation concerns and bellicose predictions of their associated risks. International markets have kept up with U.S. markets for the first time in four years. U.S. GDP levels are stout with no signs of recession on the horizon. Construction spending, durable goods orders, consumer confidence, and real estate valuations are all up. Unemployment is at historically low levels, and the trend for jobless claims continues to point downward. All of this despite three interest rate hikes since the election and another hike likely this month. As I tell my clients (oftentimes tongue-in-cheek), these are the good times!
Dr. Norman Vincent Peale’s bestselling novel The Power of Positive Thinking has a chapter entitled “Worrying is a Bad Mental Habit.” Dr. Peale may be right. Worrying about headlines is certainly not a sound investment strategy, and successfully sidestepping market declines can prove difficult, particularly if the media spurs a short-term decline. An old adage on Wall Street is “Buy the rumor, sell the news.” This speaks, in large part, to the information asymmetry which historically favored professional investors before the SEC’s Regulation Fair Disclosure was enacted in 2000.
There is another expression I refused to believe when I was at CNBC but do now after more than 10 years managing money for families and institutions: “The media is the last to know.” This is the phrase I would like clients to remember when they tune in to nightly cable news programs and/or receive distressing news alerts on their mobile devices.
Successful investing is about discipline, a repeatable process, and managing risk to achieve a specified goal. Do not be fooled by my former industry’s mission to attract and retain your eyeballs through fear. There will always be a cacophony of noise for the markets to absorb, and there will always be opportunities and risks. Most importantly, do not allow media sensationalism to influence your financial decision-making, potentially leading to irreparable harm to your portfolio. Instead, align yourself with a fiduciary that puts your interests before its own. And maybe disable automatic alerts on your smart phone!