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Financial Articles from Hefren-Tillotson

What You Don’t Know About Financial News Can Hurt You

July 8, 2016

Staying well informed on financial developments can be challenging given the dizzying speed of financial news. Headline driven websites, e-mail forwarding and social media spread content so quickly that even a discerning consumer can have trouble distinguishing quality information from manipulative content.

Some media outlets specialize in sensationalistic articles and headlines to draw readers. A term has even been coined for using this approach online – “click-bait.” By using fear inducing headlines that are intended to make our hearts jump, websites drum up a large amount of advertising revenue, but often leave the public misinformed or confused.

Many of the companies that promote these articles make no apologies for their tactics. One popular site, upworthy.com, explained that they test at least 25 headlines per article and will even make up words to catch viewers eyes. The result? Headline driven sites such as upworthy.com and buzzfeed.com find that their content is shared many more times than articles from traditional news outlets like the New York Times, CNN and the Wall Street Journal.

In 2014, a misleading chart was widely circulated online. It supposedly showed the parallel between the current stock market and the stock market crash of 1929 (left chart). What was not revealed was that chart was manipulated, using two vertical axes (instead of the usual one vertical axis) to exaggerate the similarity between the periods. In the right chart, the data is plotted using one vertical axis. Not only is the chart less ominous, it is altogether unremarkable.

Capture

Others have taken these dubious tactics even further, with not just sensationalistic articles, but intentionally false, completely made-up stories. These stories are often shared on social media platforms like Facebook, where they can quickly spread, generate likes and ad clicks for their creators. While Facebook has added mechanisms to allow users to flag stories as fake, it tends not to remove them, only making them less prominent.

Below are guidelines to help readers distinguish quality financial articles from those of questionable value:

  • Consider the source – Is the article from an internationally recognized and established news site? Large news companies rely on the accuracy and quality of their reporting for traffic, a standard less established sites often do not share. If you are unfamiliar with the source, check coverage from multiple outlets.
  • Be wary of jolting headlines –Academic research has shown that articles that frame an event in an anger or anxiety inducing way are more likely to be shared than those that use moderate spins. Even mainstream publications can go overboard and use extreme headlines and stories. Take BusinessWeek’s 1979 speculative story “The Death of Equities.” Investors that abandoned stocks in response missed one of the greatest bull markets of the last 150 years.
  • Make sure the article is current –Do not assume an article proclaiming new insights details anything noteworthy. Some articles are recycled many times, over multiple years, packaging old or irrelevant facts and scaring readers.
  • Use charts as a tool, not as a blueprint –Be skeptical of any chart used to predict the future or tell a complete story with no room for argument. Changing chart scales, showing only a small subset of information, or leaving out data can make non-convincing charts seem definitive.
  • Professional design does not mean professional journalism –just because an article looks like a legitimate newspaper article, does not imply it is written with professional standards. Articles are often formatted to resemble content from established sources, or sometimes even claim to be from a well-known source, but are not.
  • Be careful with articles that try to sell you something Articles that pitch guidebooks, videos or seminars generally have one singular motivation getting you to buy something. The author is likely trying to manipulate readers to open their wallets, not provide education.
  • Be mindful of politically themed websites politics are certainly important, but are just one of many drivers of financial markets. Politics should be used very selectively, if at all, to make personal financial decisions.
  • Talk to your advisor and discuss what concerns you with so much material available, it can be extremely valuable to get help from your advisor discerning what is important from what is marketing gymnastics.

 

PAST PERFORMANCE DOES NOT PREDICT FUTURE RESULTS. This report is based on data obtained from sources we believe to be reliable. Hefren-Tillotson does not, nor any other party, guarantee the accuracy or completeness of this report or make any warranties regarding results obtained from its usage. All opinions and estimates included in this report constitute the firms judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation to buy or sell the securities herein mentioned.