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Hack the Financial Media

A financial media literacy guide for investors. If you’re an investor, it pays to know the incentives behind your financial markets coverage.

In short: The financial and engagement imperatives of financial media organization often lead to poor investment decisions. Many of the stakeholders willing to talk to media sources also have their own financial incentives that is at odds with what they're actually seeing.

Background

There are many ways for motivated parties to “hack” investors by influencing their media sources and fellow community members.

This document collects examples of intentional and unintentional hacks of financial media. If financial media is a primary input into investing decisions (e.g., for many retail investors), you will make poor investment decisions.

The hope with this guide is to provide some antibodies to investors. (This originally started as a broader media guide, now collected here).

Contributions are welcome (see our guidelines), especially when they include vivid and relevant examples. Follow me on Twitter (@nemild) to see more examples of media manipulation.

Key Tips

  • Engagement: The primary incentive of financial media is to increase engagement, leading to more eyeballs and therefore profit. The stories media sources cover are therefore often not the information you need to make the best financial decisions.
  • Beware Trading: The drive for engagement also encourages excessive trading, even though substantial research shows that active trading often hurts returns.
  • Identify Partisans: Nearly everyone interviewed in financial media has their own financial incentive to get you to believe what they say; when assessing their speech, seek to understand their financial motives — rather than thinking of them as a fair minded observer.
  • Understand statistics: Most people — including many financial journalists — don't understand statistics. This means important topics are often covered erroneously.

General Notes

  • Reader interest is king: The fundamental issue in using media to understand the financial markets, is that coverage is a function of what readers/viewers want to read/watch — not what investors need to make the best financial decisions.
    • Commentators tailor their shows/articles to increase eyeballs, not what is the most important information for investors
    • Large price increases and drops are newsworthy, while many more important events are not; this gives you a biased data set from which to make financial decisions
    • Example (Ryan Selkis):

My new show "get rich slowly, build things, and encourage caution and temperance in crypto" was dropped from all the major financial media networks. (link)

Example (The Daily Show):

Jon Stewart: “What ...is the role for CNBC? … There were literally shows called Fast Money.”

Jim Cramer: "There's a market for it and you give it to them ... I too like you want to have a successful show ..." (link)

  • The Drive for Narrative: As Nassim Taleb often notes, narrative is a big driver for financial journalism, especially around price movements. This narrative is often erroneous, or only a small part of the picture. This drive for narrative likely ties into our human desire for understanding — and engagement for journalists.
    • Example (Bitcoin price movement):

Dear journalists, next time you write about the Bitcoin price and try to explain the price movement: The price goes down because there is more selling than buying... and the price goes up when there's more buying than selling. That's it. Stop trying to look for an explanation. (link)

  • Ignoring Risk: When comparing returns, commentators often conveniently ignore risk either because of ignorance or their desire to create a certain narrative that is more engaging. The easiest way for any investor to increase returns is to increase risk, so to truly compare returns you have to risk adjust them.

Was BTC really king this year?

BTC returns: 16x, ETH returns: 103x, LTC returns: 70x, DASH returns: 123x

If your biggest holding was BTC this year you did not make great great investment decisions.

  • Filtering history to get maximal engagement today: Financial media is good at hunting for a specific filter of past events, when it paints the present as extreme; this framing increases engagement, but misses the full context (also known as, p-hacking).

    • In December 2018, it was the "Worst December since the Great Depression" as noted by CNBC, CNN, USA Today, The Mercury News, and many others. But by most metrics, 2018 was a fairly typical period.
    • Percentages vs Points: Media sources often quote changes in points rather than percentages. This makes recent changes seem outsize compared to the past (as stocks and indexes grow due to inflation and GDP growth).

  • Extreme Language: Articles use extreme language to represent price movements, as these engage readers (e.g., meltdown, bloodbath, crash, massacre, topple), but are often statistically suspect

  • Journalistic Access and Shopping for Sympathetic Journalists: Be critical of many interviews done in financial media, given the self interests of those speaking.

    • The commentators/TV personalities/journalists who talk to the most senior financial leaders often must kowtow to them to get them to appear on their show.
    • Financial leaders also prefer shows that advance their interests, and often won't go on shows that are too critical.

  • Fake Financial News: Motivated investors profit by sharing fake news that gets large audience engagement — and moves prices.

    • Example: Jim Cramer sharing fake news about Apple to engagement-driven media sources, with the goal of dropping Apple’s stock price:

[It's] very important to spread the rumor that both Verizon and AT&T have decided that they don't like the [first Apple iPhone] ... [Spreading the rumor] is very easy as the people who write about Apple want that story, and you can claim that it's credible because you spoke to someone at Apple cause Apple [is not going to comment]. (link)