Taking my title assertion one step further, in many cases Opinion About News due to our beliefs can become our reality, whether factual or not. Yes, we are all entitled to our own opinions and beliefs. It is a free country. However, in investing, relying on strongly-held beliefs and opinions about the news can be quite risky.
First of all let me give credit to money manager and fellow blogger Jeff Miller as the inspiration for this post. I highly recommend his work to you as a regular read. Jeff has been around the market for many years and has developed many excellent sources for his own investment practice. Each week he combines the output of these sources with his own proprietary input to publish “Weighing The Week Ahead.” In one of his recent posts … ” Will earnings confirm economic strength?”, he cited an observation about education and belief by Morgan Housel (one of his trusted sources), as a Best of the week.
Miller’s Best of the Week
If I had to pick a single most important source for investors to read this week it would be Morgan Housel’s account of his dinner with Daniel Kahneman. It is a nice summary of Kahneman’s basic ideas – all worth reading. Morgan has a great sense for what is important and what you need to know about it. Here is my favorite quote:
On education changing thinking: “There are studies showing that when you present evidence to people they get very polarized even if they are highly educated. They find ways to interpret the evidence in conflicting ways. Our mind is constructed so that in many situations where we have beliefs and we have facts, the beliefs come first. That’s what makes people incapable of being convinced by evidence. So education by itself is not going to change the culture. Changing critical thinking through education is very slow and I’m not very optimistic about it.”
In other words, for many, beliefs trump facts. This is very apparent in our political discourse and the phenomenon seems to rear its ugly head in the investment process of many.
Is it just us or is there something else involved in this process?
–My answer is that, sure, it is probably a flaw in human nature, but there is a lot of additional support from today’s multi-channel media environment. If you believe strongly in anything, there is probably a media outlet that will reinforce and bolster your beliefs with tons of information, factual and otherwise.
–In reality, much of what masquerades as news today is not news but opinion about news. You can see this on CNN when a story breaks, they will trot out a team of “experts” to slice, dice and speculate about every morsel … to give opinion about the news. This is a great way to fill a 24 hour news cycle, but not much help in adding clarity. The same thing holds true for CNBC. Sadly, there will always be a news source glad to validate your position and glad to take you on as a rating point. This can be very costly when you invest.
A prime anecdotal example
(Though I work very hard to keep politics out of kortsessions.com, this example may have political overtones. Please try to ignore this while assessing my points on how opinion on the news might have adversely affected the investment results of those who let their beliefs trump fact.)
–In the face of this relatively good news, the loyal opposition countered with opinion that this was not good enough, our president was a Socialist and that he did not understand or like business. CNBC carried similar commentary from on-air personnel (Rick Santelli and Joe Kernan) and various impeccable sources, such as Home Depot co-founder, Ken Langone and Jack Welch, former CEO of General Electric. Welch even went so far as to suggest that the Obama administration had been cooking the books to come with a 7.8% unemployment rate. These are verifiable facts.
–Regardless of the facts, if one hears this misinformation repeated often enough and it is already part of their pattern of belief it becomes FACT.
–I point this out as it relates to a specific example of bad investment decision-making as a result of consuming too much opinion about news rather one’s own personal thought and reflection (critical thinking) on the news (the actual facts)…removing oneself from the echo chamber. That example fallows:
–In January of 2013, I visited a former St.Louis area money manager client of mine. We got to talking about the market and the election. He told me a story about a group of client meetings that he had held with the firm’s clients in the southeastern part of the country in October, before the election. These were basically business people and professionals, intelligent, educated people. In October their consensus was that Mitt Romney would be the next President. However, they felt that President Obama’s economic policies were so bad and his opinion and respect for business was so low that in the unlikely event he were to win re-election it would be disastrous for the economy. They had become completely indoctrinated to these beliefs. As such, they told my money manager friend if Obama won a second term they would be sellers. HE DID WIN AND IN THE FACE OF OVERWHELMING EMPIRICAL DATA COUNTERING THEIR BELIEFS THEY SOLD. They helped make the November 14, 2012 low. By January 2013, when some of those clients were calling to see if it might not be a bad idea to buy some of that stock back, the S&P had rallied 100 points from the November low. By the 16th of May of 2013 we had broken into new all-time high ground on the S&P, up 300 points from the November low (+22%). This is but one example of the harm that can be done when you let opinions about news (A Hidden Killer), coupled with deeply-held beliefs, formulate your investment strategy.
–As we end the first month of the New Year, there is still time to make a resolution that we critically examine our beliefs and biases and look for news sources (Not opinion on News) that challenge (Not Reinforce) our preconceived, entrenched beliefs. There are two sides to every coin. We need to be able to see them. It is imperative that we do this as we formulate our investment plans and as we perform our duty to inform ourselves as citizens of this great democracy.
What do you think?
The information presented in kortsessions.com represents my own opinions and does not contain recommendations for any particular investment or securities. I may, from time to time, mention certain securities for illustrative purpose, names where I personally hold positions. These are not meant to be construed as recommendations to BUY or SELL. All investments and strategies should be undertaken only after careful consideration of suitability based on the risks, tolerance for risk and personal financial situation.
6 thoughts on “The Hidden Killer–Opinions About News”
Bill, It is discouraging to live in an age of “alternative facts”. Welsh and Langone had extremely successful careers yet, in their dotage, have slipped into states of selective myopia ( “cooked the books”, etc.). The real danger isn’t in interpreting the meaning of the facts. We have to do that to act. The real danger occurs when we make up our own facts and act on them.
Thank you Harold. Unfortunately, there are lots of places in our democracy where people have begun to create their own facts, facts that conform to their already closely-held beliefs. As Kahneman suggests changing this will at best take many years regardless of education.
As one of your self-appointed political monitors, I have to tell you that I love this piece and think you will are doing us all a great service by challenging us to separate opinions about news from actual news! Similarly, I think we all need to think about how talking heads in the media can present a known (and verifiable) fact, and then lead us to conclusions about the cause or remedy that are fallacious. Understanding causes, consequences, and remedies is far more difficult that separating fact from fiction and we all must think critically about what we are hearing.
Keep up the good work my friend!
Bill, thank you for your comments and your continued readership. I agree with your conclusion completely. We have to be able to discern the point where the actual reporting of news facts end and the beginning of a news reader / pundit editorializing begins. We need to be able to think for ourselves. Critical thinking, as you point out, is not easy and it will be hard to embrace as many have opted to let their choice media outlets (their belief echo chamber) do the thinking for them.
Thanks for sharing another insightful article about what is real vs opinion
Nice session, Bill. One of my clients mentioned it. Thx for sharing, great reading and completely true in my opinion.
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