How Reliable is Financial News?

The writer and artist Carl Richards likes to call the financial news “financial pornography.” I concur with his assessment.

When you look at the incentive structure of financial media companies, what is going to drive revenue growth? Attention. What gets attention? Emotionally evocative content, flashy headlines, and calls to action. Yet, no study ever produced in the financial domain has found a positive correlation between the consumption of financial news and portfolio returns. Even financial education is often dubious, with a plethora of self-described experts ginning up as much attention through YouTube and TikTok as possible with the same emotionally evocative and clickbait-style of content.

So, what financial information is worth consuming? This week, we’re taking a look at the types and sources of financial information, and what is or isn’t worth learning from or reacting to.

Financial News Organizations & Channels

If you walk into a broker’s office, it’s not unlikely that a TV somewhere will be silently playing CNBC’s markets channel. With an unending line of portfolios managers and hedgefund analysts for 2-3 minute talking head pieces at a time, the channel creates the visual energy one has been taught by movies and media to look for. Would you really be in a true stockbroker’s office if there wasn’t a ticker tape display scrolling red and green company names with positive or negative percentages next to it?

Yet, there is a fundamental flaw with such media publications as a financial news channel. While they can be useful sources of retrospective information, much like any other news channel, they are terrible prognosticators. None of them could have foreseen that we would start bombing Iran a few weeks ago, or that the US would spring arbitrary tariffs on every other nation except for two hostile states last year, or that negotiations would open with Iran at the same time that Iran was steadfastly denying they were happening. Nor can the post-hoc reporting of such current events explain the exceptional performance of the stock pickers in congress or the dismal performance of famous talking heads on programs such as Mad Money.

The problem with using financial media as a source of valid and reliable information in the pursuit of superior investment results is that financial media serves two primary purposes: To report things that have already happened, and to platform interesting subject matter. To invest your portfolio in the present based on events that have already happened is, to describe it in the words of many financial pundits: driving your car while solely looking in the rear view mirror. And while interesting interview subjects or popular financial figures make for good television, there is no obligation to be good, right, or even truthful on television. Thus, famous frauds such as Sam Bankman Fried and Bernie Madoff have been just as popular figureheads on such programs as John Boggle was during his tenure in the financial world; because you have to remember the incentives of such news organizations: get attention, drive ad revenue, repeat.

Trading Apps & Financial Newsletters

With a self-aware nod, I’m here to tell you that any newsletter or app perporting to give away the secrets of how to make a fortune in the markets are likely just pump and dump scams. While financial newsletters have been around far longer than apps, they have generally served a self-interested purpose: Build a following, tell that following to follow your trades and recommendations, and then when they all crowd in on your advice, gloat that you foresaw that particular trade going well.

This sheep-herding/lemming-leaping-from-cliffs behavior is all too predictable. Whether it’s an algorithmically automated trade following app or an old school newsletter, the sequence is easy to follow:

1. Influencer buys a particular position.
2. Influencer publishes trades for you to follow.
3. You follow them, thus driving up the price of that asset as you and hundreds or thousands of other followers follow the trade.
4. Influencer gloats about their prescient success.
5. Influencer then sells the position.
6. Influencer publishes the sell trade for you to follow.
7. The stock crashes as you all rush to sell.
8. Influencer gloats about their ability avoid the crash before it happens.

One might wonder how this all works if the followers are forever underperforming the influencer. Simple: They were never showing true results in the first place. While it is illegal to publish an investment research newsletter without appropriate disclosures and licensing, particularly among professional analysts for major institutions, nothing stops third parties outside of the United States from doing so. There is no law that prevents someone in Bali or Spain from living an AI-generated Instagram worthy lifestyle, sharing false charts of past trading success or photoshopping their real results to massage the results, and then marketing their success heavily to the masses. We see this in finance just as much as we see it among fitness influencers or “the Manosphere” so recently documented by the recent Louis Theroux documentary.

Personal Finance Books & Blogs

Again, with great self-awareness, I’m also going to have to throw a lot of these under the bus.

While finance blogs have been a popular online medium for decades at this point, there are very few worth their salt. While some have become topically popular such as Mr. Money Mustache for the FIRE movement or The White Coat Investor for physicians, most financial blogs are written by amateurs for amateurs. You might fit the bill of that latter description more or less based on your personal and professional experience, but the problem is that you often have a phenomenon of the blind leading the blind. That’s not to say that there’s widespread ill-will or ill-intent in these platforms, but that the old adage that “a lie gets halfway around the world before the truth gets out of bed” is particularly true when it comes to financial wisdom. People tend to share their financial successes more often than their financial failures, and even if the success is entirely coincidental or unrelated to the “fact” they recently learned from an unverified or unqualified source, they’re still all the more likely to share that information with others, magnifying the myth and the ignorance.

However, there are some excellent blogs and well-qualified platforms among the financial services world that are actually worth reading. For example, the Ritholtz Wealth Management firm has built a small media empire by attracting some of the best and brightest financial professionals and content creators to live under their roof. Importantly, they not only write their own material, but they’re licensed professionals actually subject to regulation and the rules about such content. Among financial planners, the “Nerds Eye View” blog on the Kitces platform is by far the most popular read, for its consistent stream of quality content but also the degree to which it deep dives a variety of financial topics.

The key here is not that these platforms are popular, but that those who create the content on them make a living doing the work and in the topics they describe. More importantly, they’re beholden to the ethics, rules, and regulations of the professionals who do that work. You would accept nothing less than the same standard if you were trying to read about legal topics in anticipating that those writing about such things be lawyers, as you would about medical topics in assuming the authors would be medical doctors.

Trust But Verify Your Financial News

None of this is to sum up the argument as: “Trust me bro, I’m a CFP® Professional.” But to point out that the majority of financial content is more content than financial. Media has a loose obligation to report the facts of a matter, but there is no regulatory entity ensuring that every guest on CNBC has actually conducted thorough scientific research on whatever topic they’re discussing. Market newsletters and trading apps can be interesting reads or things to follow, but you’re forever subject to the risk that you’re simply providing the wind beneath the wings of a better-informed publisher. And while financial blogs and other such content can be good sources of information, it helps to apply a great degree of healthy skepticism to the content you consume rather than presuming it must be true. It helps to know the authors and sources are more credible than having a large social media following, but sometimes credible people have both.

All of that to say, my two cents? Skip it all. As financial planners we’re beholden to stay current on the market, economy, politics, and so on. I can tell you with no degree of uncertainty that the vast majority of what we’re consuming on a daily basis is just noise that is best ignored. And unless you’re applying a consistent S.C.A.M.E. framework¹ to understand what you’re looking at and really parsing it for validity and reliability, it’s typically best not acted on or relied upon. Consequently, the more you zoom out from all the noise in the financial ecosystem, the happier you’ll be. That, I can just about guarantee.

¹ “Source, Content, Audience, Media, Effect.” This is the framework by which the United States Military’s PSYOP units evaluate propaganda and assess its effectiveness and meaning.