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Looking Beyond the Headlines

 

Making investment decisions can be confusing amid constant conflicting information from news headlines.  Often making decisions based on news headlines can actually result in poor portfolio performance.  There are several reasons for this. 

 

Firstly, news media is successful based on their ability to get viewership or readership.  This makes them prone to exaggerate or sensationalize news stories either intentionally or unintentionally.  Fear in media sells and there are several reasons for this.  Medium Media has a good article that addresses this topic.

 

Secondly, News sentiment is generally positive when the stock market is up and is negative when the stock market is down.  Therefore, if you explicitly listened to the headline sentiment you would be buying high and selling low.  This is hardly the best way to invest in the long-term because ideally you would want to do precisely the opposite.

 

Lastly, Financial journalists and commentators are generally not professional investors themselves.  They are trained primarily to distribute the news.  Sometimes TV guests brought to the program as experts can be there to help support a certain media narrative that the network is trying to communicate. 

 

In conclusion, While I don’t discourage listening on reading media publications.  It is important to look beyond the headlines and do your own analysis and thinking.  Take media headlines with a grain of salt and do your own research.  Even the opinion of analysts can’t be always trusted especially for company specific guidance.  Negative coverage by an analyst can result in limited corporate access for that analyst in the future, and they may want to maintain relationships.  In some cases, financial compensation might be involved to maintain the relationship.  Therefore, it is rare for an analyst to have a sell rating on a stock they cover.  

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