The Week Explained: Media reporting

PUBLISHED : Monday, 07 January, 2013, 12:00am
UPDATED : Monday, 07 January, 2013, 4:31am

Do you find investment reporting in the media confusing? I do, even though I've been doing it for too long. So here are some tips to make sense of what you see and read.

Perhaps the most fraught are those breathless television financial shows where lots of space needs to be filled, and much of it is taken up with stock market updates. Sadly for the good folk at Breathless Television Business News, markets spend most of their time moving up and down at a steady pace. The presenters try to sex it up with dynamic adjectives such as "stocks surged" or "stocks plummeted", followed by a big sounding number, such as, "the Hang Seng surged by over 200 points today".

If that happened, share prices would only have risen by about 1 per cent, which sounds a hell of a lot less interesting.

Another tactic for sexing up stock market news is to frame it in a fairly meaningless time frame. "The market recorded its best day in the past six days of trading." Daily trends tell you very little - it's the moving averages that count. In other words, to get a sense of stock market direction, you need not only the closing prices, but the average movements over the day, and over longer than just a few days.

Stocks tend to occupy a lot of breaking financial news space. But the same strictures apply to other investments, particularly currencies that fluctuate in price over any given trading day. Individual traders get frustrated when they fail to achieve the prices quoted on the ticker tapes running across the screens of business shows. The reason is that these prices are only available to really big traders. The average individual investor always gets a poorer deal. But at least the price movement seen on these screens gives a sense of direction.

But it would probably be best to try and shut out a lot of the other noise on market movements, because some of it is downright misleading.

How often have you heard the phrase "markets dislike uncertainty" uttered when news breaks, such as a big political event? This is balderdash; uncertainty is what gets traders' juices flowing, while a lack of news means a lack of market movers, which is no good for them.

Nevertheless, bad news about, say, horrendous government debt often spooks individual investors. They should relax. They are not compelled to act when they are uncertain, on the contrary they can wait until they are comfortable about their information. They can ignore the yelling on the financial shows about how investors should buy or sell right now.

Business reporters are prone to echo the misleading euphemisms so loved by governments and financial institutions. So we hear lots of talk about "quantitative easing", which means central banks printing money, thus lowering interest rates. Or big financial firms saying they were "highly leveraged" as opposed to "unable to pay debts".

It puzzles me why stockbrokers, bond traders and other traders are called upon to pontificate on the state of the economy. This is like thinking a pastry chef is the best person to tell you how to prepare coq au vin. Traders have no special economic expertise. They know what's good for markets, which is not the same thing as what's good for economies. So their views can be taken with a pinch of salt, especially when they tell us that the market "likes" or "dislikes" something.

Remember, for instance, "the market" loves the euro-zone crisis because it provides endless trading opportunities.

But ask the average person in Europe how they feel about growing unemployment, or falling purchasing power, and you will get a very different story.