A Financial Journalist Breaks Ranks

On occasion a financial journalist will break ranks and spill the beans on why they write articles they know offer zero value to their readers.

Michael Pascoe is one of Australia’s most experienced and respected finance journalists. For many years, he hosted the Nine Network’s Sunday morning business program. Now, well into his 60s, he has admitted that most daily financial markets reports are rubbish and that for journalists, they are a meaningless grind.

We have reproduced below his article “Confessions of a finance journalist: Most of what you hear is noise” that he recently published[i].

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I have a confession to make: For a quarter of a century it was my job to provide daily financial market reports of one kind or another. Like all other daily financial markets reports, they were mostly rubbish.

With a rough end to 2018, and 2019 beginning with more uncertainty than most, market reports are tending to sound a little anxious. That’s not so unusual – the tone tends to be either euphoria or anxiety.

That rollercoaster started for me with covering the old Sydney Futures Exchange when I was at the Australian Financial Review, through being finance editor for Macquarie Radio, then Channel Nine and finally in podcasts for Fairfax Media.

It was the usual grind of reporting this up a bit, that down a bit, occasionally something up or down quite a lot, once in a while an explosion of some kind.

Oh, there was some real drama along the way as major events had impact and when the markets themselves became major events. But mostly those daily reports were about as useful for investors as what yesterday’s weather was for deciding whether to carry an umbrella tomorrow.

Most of those market reports were and are “noise” – they don’t add up to much at all. Just like the first half of the nightly television weather report, there’s perhaps a passing interest in knowing what the temperature had been that day, but so what?

For traders, by the time the media reports market movements, they are too late to matter.

For investors, the unit of time – a day – is too short to matter.

So I was paid for doing stuff that mostly didn’t matter.

And market reporting is worse now.

Taking a daily snapshot of what happened was one thing, but with “live” reporting and 24-hour business channels, the constant gyrations have to be made to seem more dramatic to get attention. Every other movement is a “plunge” or a “jump”. The noise has been turned up louder.

The damage of constant loud noise is that it can scare inexperienced investors. It makes the stock market seem a much more frightening place than it really is. It also can make the more conservative end of the market appear as risky as the speculative end, leading novices to gamble rather than invest.

I feel a little guilty about the noise I contributed over the years. Sure, there were column inches of newsprint and broadcast minutes to fill.

“On the Australian stock market today, nothing much happened, so it’s back to you for sport” wouldn’t have been acceptable.

Guilt about the noise is perhaps why I now tend to concentrate on trying to get people to keep perspective about our markets and economy, to take a longer-term view.

For an investor in or outside of superannuation, having the appropriate mix of assets and patience about outcomes is more important than knowing what the market did today or this month or year.

Yes, the December quarter was a downer for investments. That happens from time to time. The March quarter might or might not be, too. Markets can’t always go up. But if the underlying assets in a diversified portfolio are fundamentally sound, the good quarters end up outweighing the not so good.

And as covered in farewelling 2018, the main headline measure of what our market is doing, the ASX 200, is misleading anyway. It’s the accumulation index [that tracks price AND dividends] that really tells the story – and it’s a more reassuring one.

The trouble with repeatedly saying “keep perspective” is that it gets boring. People want to hear or read something different.

You get a lot more attention if you shout “Australia might have a recession” than if you say “there’s uncertainty about, but the odds are it will work out OK”.

What’s more frustrating is that a scary story finds it easier to do repeat business than a story about keeping perspective.

For example, the vast majority of economists can’t see a recession on our horizon – challenges, yes, a recession, no. But that majority will get far less media coverage than one or two individuals prepared to forecast something more alarming or outlandish.

Remember Steve Keen? A decade ago he forecast Australian house prices were about to fall 40 per cent and unemployment would jump to 20 per cent. His forecast was everywhere as he was given credulous coverage by 60 Minutes and the ABC and all points in between.

The forecast was obviously nonsense at the time, but that didn’t stop the media lapping it up. Fear sells.

Professor Keen is visiting Australia again this year and will no doubt be given media opportunities to forecast more doom and gloom – and the coverage again is likely to be uncritical. Fear still sells.

By comparison, AMP chief economist Shane Oliver compiled a list of “The Nine Bad Habits of Highly Ineffective Investors” two years ago. It would be a fine service to publish it every year to remind investors of their potential mistakes – but nobody publishes the same story every year, unless it’s a particularly scary one.

It’s a wonderful list. Each one of the nine points deserves an individual column. Come to think of it, this column has pretty much been about Oliver’s bad habit No.6: Looking at your investments too much.

“This sounds perverse – surely checking up on how your investments are doing is a good thing? But the danger is that the more investors are exposed to news around their investments, the more they may see them going up and down – on a day-to-day basis it’s close to 50-50 as to whether the sharemarket will be up or down.

“This ‘noise’ can cause investors to freeze or, worse still, it feeds on our natural aversion to any reduction in the value of our investments and thus encourages a greater exposure to lower-returning, safer investments.

“As a 1997 study by US behavioural economist Richard Thaler found investors ‘with the most data [about how their investment is performing] did the worst in terms of money earned’.

“The trick is to have patience (evidence shows that patient people make better investors because they can look beyond short-term noise or are less inclined to jump from investment to investment after they have already run) and turn down the noise.”

Author: Rick Walker

[i] Article originally published at https://thenewdaily.com.au/money/2019/02/08/michael-pascoe-noise/ on 8 February 2019.