What is the purpose of financial news? Seriously, what purpose does it serve? On some level it provides us with a common base of knowledge so we can communicate with other people in the markets. Ben Hunt at Epsilon Theory recently wrote:
It’s not what the crowd believes. It’s what the crowd believes that the crowd believes. The power of a crowd seeing a crowd is one of the most awesome forces in human society. It topples governments. It launches Crusades. It builds cathedrals. And it darn sure moves markets.
Hunt goes on to talk about the mechanism by which this information is moved through the markets: financial media outlets like the WSJ, FT, CNBC and Bloomberg. The problem is that beyond acquiring some base-line information, it is not altogether clear whether any of what you read is at all actionable. Stefan Cheplick writes:
I know no great investor who has ever attributed their success to news or headlines. If you know anyone who thinks like this, I will be straight up in awe…The money in headlines is shaking people out. It’s tricking them into dreams of grandeur, then shattering them. Headlines are glass castles.
Those glass castles can be expensive, as Cheplick notes how many newbie cryptocurrency traders got sucked into Bitcoin at the worst time possible. Another investor, Howard Lindzon makes a similar point:
This is the exact reason I gave up news/information from ALL of the above (I would pay for a Bloomberg Terminal if I had the budget/luxury). They gave me ZERO edge. Turning them off completely is what finally gave me an edge.
This is due in part to the nature of the news, especially in today’s day and age, when headlines can be A/B tested to insure the highest click through rates. Josh Brown at The Reformed Broker notes that the humdrum, everyday news doesn’t get published:
106,000 or so flights take off and land every single day, almost always without incident. That’s why it’s news when one doesn’t.
Market activity is much the same, almost every day represents a day without a crash…And so anything that has even the slightest imprimatur of potentially crash-y activity leads the headlines.
We can’t all be like this Ohio man who has gone to great lengths to avoid any, and all, news since the 2016 election. It simply is too much work. We can however choose to engage the financial news on our own terms. Those terms should include a knowledge of how the game is played and how not to get played in the process.