If it Bleeds, it Leads
Have we reached a saturation point for negative financial news stories? Tuesday, 16 May 2023
Media companies are in the business of making money, and their profit motives tend to supersede other agendas. However, we may have reached a saturation point when it comes to negative financial news stories, with some investors having a skewed view of market performance that is not based in reality. It may be time for fewer flashy headlines and more context, and that's what we'll examine in this episode.
Hi everyone, Jay Pluimer here with Flourish Insights. As the director of investments at Flourish Wealth Management, I take pride in providing our clients, colleagues, and friends with resources and information that can help them make strategic and effective choices regarding their investments. Did you know we have an Alexa Skill? To listen on your Alexa device, just say, “Alexa, play Flourish Insights.”
Today, we are discussing the role of media and their commitment to the premise that If it Bleeds, it Leads.
This will not be an anti-media podcast episode. However, the reality is that the vast majority of media companies are in the business of making money. That fact is also true for social media companies that amplify messaging and storylines from mainstream media. The profit motive supersedes any potential political agendas for media companies, in my opinion, although some stories may be skewed to appeal to certain audiences.
It has been startling to meet with a large number of Flourish clients over the past few months who are honestly surprised to see that their accounts have positive returns in the first few months of 2023. The stock and bond markets have both been up pretty consistently through the first 4 months of the year, including parts of the market that have done poorly over the past years like Emerging Markets and International Stocks. Although I don’t expect the media to provide a fair and balanced approach to all of their news stories, the emphasis on negative storylines may have reached a saturation point when investors are no longer aware that they are making money.
For example, I was watching the news while getting ready for work in late February when a story tease before a commercial break stated “don’t check your 401k statements”. That statement caught my attention because I wasn’t aware of a significant market dip over the past few days, so I stopped what I was doing to look at the latest financial news stories and market movements, all of which were positive for the week. I was motivated by the tease to stick around for the news story which basically summarized that 2022 was a bad year for Stocks and Bonds, noting that globally balanced portfolios with around 60% in Stocks and 40% in Bonds had one of their worst years on record. All of that information was correct, but it wasn’t any more relevant in late February than it was at the beginning of the year and there was no mention during the news story about stock markets performing well to start the year. In addition, if I was tempted to look up market performance by watching the news story, then I can only imagine how many other people did the exact opposite of the tease and checked their 401k statements that morning. My conclusion was that the story was mostly accurate while leaving out any information about positive trends, but it wasn’t “news” from the standpoint that the information wasn’t new.
The fact is that negative storylines about bank failures or high mortgage rates or growing credit card debt can be accurate, but need more context than is being provided by most media companies to fully understand the story that is being presented. Leading a newscast by showing logos of local banks in a story about bank failures is designed to feed into fears that your local banks are in trouble. Although the news story ends up being about Silicon Valley Bank and Signature Bank New York, both of which failed earlier this year, the implication is that the same thing could happen to local banks that are used by the viewers. The missing context is that Silicon Valley Bank and Signature Bank New York had a very specific chain of events that led to their failures, so unless your local bank has huge venture capital loans, has over 25% of its customers in the Cryptocurrency industry, or has overextended themselves with bad investments your accounts are safe. Plus, FDIC Insurance supports cash and CD balances up to $250,000 which is probably more than the vast majority of viewers would have at the bank.
I don’t blame the media for telling stories that attract and retain viewers because that’s what they need to do in order to have advertising dollars. I also don’t blame members of the media for not being experts about the banking system or failing to differentiate between a healthy balance sheet at a local bank and a unique set of bad decisions at a bank in a different part of the country. However, it’s important for members of the Financial Services industry to share context and information to help clients understand the news better and then allow them to make their own conclusions. For example, I had a client ask me whether or not they should use some of their cash to buy bars of gold, a question that I am guessing was motivated by fears and worries created by the media (FYI that I said “no” to buying gold because it earns 0% interest, never pays a dividend, and there is no guarantee of getting the value of your investment back compared to buying a 12-month CD with 5% interest and FDIC Insurance on the value of your investment).
The goal of this podcast is to encourage listeners to look for more information and ask your own questions whenever you see a news story that provokes fear. That applies as much to a warning about urban violence and tornadoes as it does to concerns about the banking industry or your current 401k balance. In addition, it’s important to remember that the person telling you the news has a motive to make money off the information they are sharing. The media isn’t necessarily good or bad, but focusing most of the daily coverage on negative news stories without complete context will consistently create an environment of fear and anxiety that isn’t conducive to making good long-term financial decisions.
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