The financial media overreacts to every news story because they need to attract viewers. As investors, we need to be careful and know what is important and what is not.

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We’ve all heard the national news reports about severe weather—particularly hurricanes. If you live in those states—Florida, Louisiana, Texas—where hurricanes are most likely to hit, you may see the impending storm and hear the media telling us to evacuate. Last year, Hurricane Matthew did not hit Florida with nearly the ferocity that it did the Caribbean Islands. Leading up to the event, forecasters were frustrated with people who did not vacate even though they were told to do so.

Some people who did not vacate may have been discouraged by the bumper-to-bumper traffic on the freeway, but it’s more likely that they didn’t leave because they believe that the media was just crying wolf.

Meteorology is a risky game. Forecasts are not perfect—both in weather and in the financial side as well. You measure the probabilistic outcomes and weigh them against the potential risks. Some will be right and some will be wrong. I believe that many of us don’t believe these reports because the media has a very long history of sensationalizing almost everything.

We’ve all seen the news report where the weather man is outside in the middle of the storm, geared up and standing in a dinghy in the middle of the “flooded” street while a man walks by in the background in what is really an inch of water with nothing but a pair of boots on.

 

 

The media sensationalizes reports because it attracts viewers. The financial media is no different. There is a long history of the financial media overreacting to just about every news story out there. Most investors have a longer-term outlook than what the financial media is trying to get you to look at. The financial media’s job is to sensationalize everything because if we don’t tune in, they can’t sell ads.

In January 2014, The Wall Street Journal ran a headline that talked about fear spreading in the markets and the markets tumbling. They even had a graph that showed the markets getting ready to tumble off a cliff. Anyone who took that cue and chose to sell some stocks most likely made a very costly mistake. The S&P 500 was up more than 13% that year.

As investors, we need to recognize that it’s the media’s job to get our attention, not help us invest. With that in mind, it will be easier to distinguish between the important financial news and the sensationalist journalism that has the media crying wolf. Remember, stay the course.

If you have any questions about this or any topic, please don’t hesitate to reach out to me. I would be happy to help.

 

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