In my last blog I mentioned I would follow up with example of not only why the financial press is virtually always wrong, but why they have to be wrong. Again, in this vitriolic time I feel compelled to remind you that this is not a political commentary of any kind. Any comments made here that sound to you like something a political party would agree with is strictly a coincidence.
First thing to consider is what business do you think the financial press is in? If you answered “informing” the public on financial matters, you’d be wrong. Whether they be internet based, broadcast based, or in print, they are all in the business of selling advertising. You can’t find an internet based article that isn’t prolifically sprinkled with ads. Messages on radio and tv are routinely interrupted for a slew of ads. Print media as well. This is how they derive their revenue. So if the financial media set out to tell you to set up a well-diversified portfolio designed to meet the needs of you and your loved ones for years and decades ahead, and that usually the only changes to that portfolio should be driven by changes in your needs, you wouldn’t have any reason to “tune in tomorrow”. Instead they must serve up hyperbolic headlines designed to scare you into paying attention, so you can help them drive up their ad rates.
Consider Money Magazine’s cover story in the summer of 1999, as the dot.com craze was peaking and the stock market in general, and tech related companies in particular, were more expensive than they had ever been. The cover read: “Tech Stocks – Everyone’s Getting Rich. Here’s how to get your share.” Three years later, after the overall market had fallen more than 40% and the tech stocks as much as 80%, their cover implored people to learn “How to build wealth and make it last”. So when the market was at it’s most expensive, the cover encouraged people to jump in, but after it was deeply discounted, their advice was to think long term and take it easy. This is no coincidence. If they had reversed the timing of those covers, Money would have been sure to sell far fewer magazines and would have suffered greatly declining ad revenues.
This need continues today. With so many sources of “information”, the shrillest message could grab your attention. The stock market has risen for many years without a “crash” but not without several 10, 15, and even nearly a 20% correction. So constantly articles are written that say a crash/correction is way overdue. We haven’t had an official recession in many years either – mostly due to one of the longest and most anemic economic recoveries after a recession in our history. So a recession must be near, the story goes. Or that if the Fed raises rates from historically low levels to more normal levels, it will force a recession. None of that is how this works.
Again, should they tell you that the current economic growth is robust and global, and that most economic indicators point to that continuing for the foreseeable future, why would you bother to check back. If they added that all recessions and seemingly correlated market declines have always been temporary, and therefore the only sane strategy has always been to ride it out, you may turn away from the media for a long time – maybe forever.
They can’t allow that so they continue creating ad revenue by trying to scare you. Turn off the media. Enjoy your life. You won’t regret it.