Ignore Financial Pornography
Imagine I go on a long walk*, traveling from Fargo, North Dakota, where I'm from, to Minneapolis, Minnesota, where I live now. This trip is going to take a long time. I'm not going to take this trip alone, though. I'm going to take my dog, Bingo, with me. Assume that I will not be using a leash with Bingo during this walk. Bingo will be able to run free, checking out the smells all around. Sometimes, Bingo is far off, doing her own thing, but always keeps going in the right direction with me.
Now, if you were to track my progress, you would be pretty bored. You might want to check in every once in a while, just out of curiosity, to see where I am. It would be a great waste of your time to check in and see where I am every minute of every day. It's not interesting.
If you made money by selling the rights to check my progress, you would not be a very rich person. If only there was a way to increase viewership and raise your revenue.
Ah ha, Bingo! You could change the focus; distract people by having them think it's more important to see where the dog is going. Bingo will be in front of me, behind me, on my left, on my right, close, far...all over the board. People could place bets on Bingo's position every minute of every day. You could bring in people who call themselves experts that would predict where Bingo would go. None of that helps my progress toward getting to my goal, Minneapolis, but it's exciting and it sells.
This is exactly what the financial media does.
The Headlines You'll Never Read
You aren't likely to read or hear headlines like, "Choose A Long-Term Allocation And Stay The Course," "Research Shows More Trading Results In Less Terminal Wealth," or "Get Rich By Spending Less Than You Earn." These are all perfectly true and will help you out, but they are boring, and they won't sell any ads. Large financial institutions are major advertisers in financial news outlets. The goal, then, is to create stories and shows that draw you in. Once you're there you'll be subject to the ads that will make you think you need to make some change. And guess who will be there to help you make those changes? The same large financial institutions that provide the advertising dollars. Investment and financial shows are almost always just advertising and tabloids.
Author Jane Bryant Quinn coined the phrase investment pornography or financial pornography. These are stories that grab our attention be give us no long term value.
Beware of Experts
Experts, or rather, "experts," are the people news outlets interview in order to give you the illusion that the future is predictable. Author Larry Swedroe points out that there are three kinds of people in the world:
Those who don't know where the market is going,
Those who don't know they don't know where the market is going [they think they can predict the future],
Those who know they don't know where the market is going, but make a lot of money pretending to.
Notice there isn't a fourth option for those who actually know where the market is going or what the economy is going to do. It simply isn't logical. Once information is known in the markets, prices react very quickly. Once too many people know something, prices adjusted quickly to the point where nobody will be able to profit from that information anymore. If someone knew what was going to happen in the future, in other words, they knew something that the market doesn't already know, they would simply use that information to make a ton of money. The fact that they are trying to give that information away to us for free is evidence that they don't actually have a clue.
The Truth Is...
We tune into the news on television hoping for an exchange of information. Instead, it is nothing more than entertainment with a focus on ratings. This is true of all news, but it's especially true in financial news. They don't want you to know the truth - what happened in the markets yesterday, or what will happen tomorrow, does not matter.
Personal Economy
Author Carl Richards talks about our personal economy. We can control or personal economy. What we can't control is what happens in the markets or the broad economy. The best we can do is set up a plan and system that will work in all environments. Stressing out about things we can't control is not helpful to us. Instead, we can focus on our personal economy. What happens in China next week or what happened in Russia yesterday isn't likely to affect us today, and we can't control those outcomes anyway. We can, however, control how much we save and spend, how much time we spend building our skills in order to earn more, and how much time we spend with our families.
Key Takeaway
You are going to be influenced by the financial media. You more prepared you are and the better you are at recognizing it and dealing with it, the better off your finances will be. Author William Bernstein has said that buying the whole market is itself the best forecaster. It takes into account the collective wisdom of all market participants, including the most brilliant and well-informed minds in finance. The best news is that we can very easily buy the whole market (keeping in mind our tolerances for risks and only putting an appropriate amount into the markets) and we do so very inexpensively. It also frees up our time so we can focus on living the lives that we want.
*Note: the idea for this story comes from a book I read, but for the life of me, I can't recall the book, nor the author. Please know that the idea for the dog and walker story didn't originate with me.
