Protect Yourself from "Ratings Whores"
We live in an information-centric world. Media outlets are often judged more on their Nielsen and Arbitron ratings than on the quality of their content. First mover advantage plus intriguing, though sometimes deceptive, headlines capture viewers, clickers and listeners.
The old adage, “Bad news sells,” has never been more accurate. There has been no dearth of scary financial events over the past few years. Media companies love to trumpet "trouble" in order to improve their audience share. When choosing between calm discussion and over-hyped doom, there is no doubt which will prevail.
Investment-related channels welcome the chance to make traders crazy. The stock market had been chugging along pretty well during the first part of 2010. Viewership was slipping. The Greek crisis and subsequent European bailout provided great fodder for end-of-civilization headlines. Our domestic May 6, 2010,Flash Crash was a bonus event for networks that sent ratings soaring and equities values sinking.
Those who sold on the bad news regretted it by year-end. Stocks finished nicely higher on Dec. 31. The S&P 500 sported a 15.06% total return while the broader Wilshire 5000 tallied positive 17.9%.
Just like the year before, 2011 started out strong. That was a negative from a media point of view. That summertime's debt ceiling debate was a blessing for TV, radio and financially-oriented web sites. The August 2011, market swoon and the subsequent extreme volatility was enough to drive traders crazy. Networks loved it as audiences expanded to watch to carnage. Most people have difficulty turning away from train wrecks.
Talking heads stirred the pot while magnifying fears. Many hosts warned of a total melt-down as the DJIA rose or fell by 400 to 500 points a day. By early October, when the final bottom occurred, many otherwise prudent people had been scared into selling.
If those previously long-term investors had pulled a Rip Van Winkle, and slept through the whole year, they might have thought nothing much had happened. The S&P 500 showed a poetic, full-year 2011 total return of 2.11%. The DJIA gained 5.5% including dividends.
Would 2012 be a three-peat? It sure looked that way through the end of March. Shares surged while CNBC’s ratings plunged. The big anticipation was the looming Facebook (NASDAQ:FB) IPO. Nasdaq’s botched first day’s trading and Facebook’s almost immediate price drop made for great viewership as the investor misery index skyrocketed.
The same pundits that were touting FB as the "stock to own" were then (ironically) explaining to us why the offering was a total bust for all but the insiders who sold to a gullible public. Lots of eager buyers at $38 sold out in disgust on the way to August's sub-$19 low point.
Those who caved in to the constant negative press and cut their losses … missed the recovery. Facebook touched a new all-time high of $49.66 recently.
Remember all the on-air chatter that hit the media around Thanksgiving? You couldn’t avoid talk of the "fiscal cliff." We were inundated with countdown clocks and dire forecasts daily. Clicks, listens and views took off as the market plummeted.
People failed to learn from experience. Many were induced into selling while the negative headlines drove share prices lower. They ended up getting very bad prices. The political settlement didn’t come until just after New Year’s Day. By then, the stock market bottom had already passed. Total return on the S&P 500 during 2012 was fine at 16.0%. It was available to anyone who was immune to the ubiquitous hype from the net and the airwaves.
Newspapers, television stations and internet sites get paid for traffic. They thrive on attention grabbing headlines. Media has a self-serving bias towards rating-ramping bad news. Don’t let their cravings cost you money.
Keep history in mind when you see present-day broadcasts of the ongoing government shutdown discussion. I’m already starting to see on-screen warnings of how many days, hours and minutes we have left until Washington D.C. closes shop and Armageddon follows.
In our ZIRP (Zero Interest Rate Policy) world your only chance is to own assets that can grow. Don’t get shaken out of your long term plan by anchormen that only care about ratings.
Disclosure: No positions in any stocks mentioned
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