If you live in Eastern Australia you couldn’t help but notice that over the weekend it rained a little. This rain was both preceded and accompanied by warnings of an impending apocalypse. A succession of emergency service personal and politicians told me that the end of days was upon us and that we were all going to be swept out to sea in the ensuing flood. A series of overly pneumatic blonde weather girls seemed to appear out of nowhere and breathlessly hype the view that a flood of biblical proportions was upon us. Turning on the radio whilst heading out to lunch on Firday I was told that I could buy sand and sand bags from Bunnings in what would be a futile attempt to stem the tide. However, some in my area did do just that.
I might point out that other than a few idiots attempting to drive through huge puddles none of the apocalyptic predictions of the news services came true despite desperate attempts to present it as a done deal. I have no problem with emergency services overselling things since they bear the brunt of public responsibility for such things. Mainstream media simply feed off this and amplify it to the point of hysteria. If you have ever done any form of forecasting you have worked with the notion of ranges and the error that accompanies them, this is something that the media is too stupid to understand. As a consequence of this and their desire to each be more sensational than their counterparts they present the worst case scenario as the most likely scenario. All of this is designed to illicit a visceral response in their audience – this visceral response overrides all of our logical processing and causes us to do things such as undertake sandbagging in suburban Malvern.
To be fair weather forecasting is both pretty good and immensely difficult, they certainly do a better job than peanuts who try and predict the stockmarket. The presentation of information is not the issue, it s the presentation of news that is the problem and this is a problem not only for those trying to stay dry but also for traders being profitable. Very little of what is presented to traders is actually information, most of it is information presented as narrative or news. A narrative has a bias or twist to it, this is essential for news services because it hooks people in. It seeks to provide a story where none is necessary. For example consider the reporting on the daily movements in the market. The report generally drops in a rationale for something occurring such as the market went down 10 points on profit taking. There are a few points to look at. How do you know? Did the news services poll every seller in the market and ask them why they sold. Did they then match out sellers and buyers because for every seller there has to be a buyer and determine that the sellers were more anxious in their transactions and therefore forced prices down by aggressively competing with one another for the available pool of buyers?
None of this will have occurred but it sounds better than saying the market today followed its normal range of volatility and moved down 10 points. The same is true for broader notion of news because for 99.9% of the time nothing happens for 99.9% of people – this is simply how life works. It is also how life works for the majority of traders since for successive traders profitability lies in the junction of habit, routine and boredom. It has to be this way because if you are swept up in the hyperbole of the business media then your decision making is based upon an emotional response to someone else’s opinion rather than your own studied judgement. Granted this is how the majority of people approach investing, particularly those who manage money professionally but it doesn’t have to be that way for everyone. All it takes is for everyone to take a deep breath, put the kettle on and have a think before undertaking any action.