Media Contribution to the Financial Markets
When attempting to write the 1st few words of this (what is likely to be a longer form) blog post… I have wrestled back and forth on — the how, the why, and the result and to better explain my thoughts and the learning that can be taken from this blog post, I will be answering theses 3 Questions.
1. How can the media play such an Important role in the Financial Markets
2. Why does the media influence decision making and affect Investing mindset
3. What is the net result to both You (the Retail Trader) and the Media Company (the Influencer)
It doesn’t really take a doctorate in Astrophysics and Quantum Theory to understand that the major hitters and the media conglomerates such as CNBC, Bloomberg, BBC News etc have a pivotal role to play in the distribution of content… this in itself is not earth shattering news…. So when attempting to understand the How — we must really try to understand, and wrap our heads around the end goal of the media outlets and what the How actually involves.
As consumers, naturally….. we consume content…. By reading this post… you are consuming content — some of you may find it useful — some of you may not…. but by having a thorough understanding, that by consuming media content — we are really saying to the content provider — we are open to being influenced… and this is the beginning of the How.
The News driven Media Companies thrive on sensationalist articles to drive user growth, if you don’t click or you don’t add to the viewing numbers — the media company have failed in their goal…. and by having a broad understanding that Headline driven articles are simply a tool they use to grab your click, and that they NEED the content to be as far reaching as possible — this is How the Media can play a role in the Financial Markets….. YOU…. the retail Trader / Investor — can be influenced by sensationalist news headlines that can drive markets.
Let’s assume for a second that there is an “agenda”…. Let’s assume that these Media companies are also active investors in their shady Offshore Panamanian or Cayman Island Tax Havens and let’s assume that the news is geared towards favourable Market Conditions for their own investments…. It becomes rather clear…. rather quickly…. that the Why is obvious.
When we see headlines saying “Watch Out — Crash Coming” or “Analyst says buy Apple Stock”…. Or Cramer jumps on CNBC saying “SELL Netflix — It’s overvalued” Is it a stretch to assume that there is a vested interest in the direction of the Price Movement? (either over the short or long term)….. Astrophysics anyone?
As retail traders, and (hopefully) you’re all (like me) long term trend based investors — we must open our minds FULLY, to the possibility that all the information that is drip fed to us is not entirely representative of what is “actually” going on.
Having a deep understanding of the Financial Markets like I do (which has been built over many years) I would urge you to try to understand the under-currents, because it can certainly assist you better to achieve longer term goals and financial security.
By allowing outside influences distract you from the Information that is presented to you through the function of Time. Price, and Technical Analysis — you are allowing the Media companies to influence you into making irrational decisions that are NOT supported by Technical Analysis — and unfortunately when we are influenced into making irrational decisions at irrational times — the house will win more often than not — and you’ll be sent home to your spouse with the tail between your legs saying you lost the kids college fund.
What we see presented to us … is simply geared towards an un-spoken agenda ….. when everyone is panic selling…. who do you think is buying and who do you think is selling? Is it the smart money or the dumb money? If you can answer that question — you can learn to be more profitable in the Financial Markets.
The Net Result
As I sit here on my Overnight flight from Vancouver — London…. I have contemplated this for around an hour…. And as I weigh up the response…. The answer in my mind has a 2 Part response and some of you may like it, some of you may not…. but I will also attempt to cultivate a solution for you. and explain my rationale.
The impact to the humble Retail Investor, is quite simple — you lose.
Obviously when Trading on Margin (CFD’s / Spread Betting / Options etc) — losses need to be cut quickly…. But when we talk about Investing long term (truly long term) and NOT just over a period of a couple of months…. It pays to understand that the only real circumstance for cutting positions on top performing Stocks is during a Market Crash and the subsequent Bear Market. (hopefully by selling you would have the purpose of taking of advantage of the down trend)
There is TREMENDOUS opportunity for making life changing sums of money during a Crash, but ultimately — if you sell off your position during a minor down turn and the market conditions rebound (which they do most of the time) then you should (if capital allows) — be looking to add further positions, just like the recent Market Correction of Feb 2018 provided us with the opportunity of doing.
If you sell your position during Short Term News Events that are fed by the media — you will ultimately be selling too early, and opening yourself up to potentially taking losses.
It is worth pointing out (and this is a sentiment that is echoed by the likes of Warren Buffett, Tony Robbins and Ray Dalio) — YOU ONLY TAKE A LOSS — IF YOU SELL YOUR POSITION…. Sure…. You can watch the value of your portfolio diminish…. But by holding through the minor downturns, this is seen as the smart play and the smart money.
If you allow the media to influence you — you will lose. It pays better to react to Technical Analysis — and this is why most successful Long Term Investors simply do not listen to news…. They understand that Price and Technical Analysis should dictate all.
On a final note… and further my original question — Quite Simply — The Media Machine wins / the Big Money wins, and their algorithms will gobble up your shares at a lower price, the media will then give us positive news the following day, and they then start counting profits…. this is the approach of the Big Money (Investment Banks / Hedge Funds / Media etc)…. And whilst I understand that you cannot match the buying power to move markets etc — you can still adopt the same long term approach that they use and choose your stock positions wisely to give yourself the best opportunity of success.
If you’re interested in education and you struggle with your trading results… we’d love to hear from you.