The Financial Media’s Stock Market Blind Spots

Economics and market behavior are chaotic and often poorly understood by a wide range of interested parties. One such group is the financial media, where there is a pantheon of commonly used ideas and phrases that do not translate to actual events or rational decision making. Here are a few poorly conceived phrases I read too often.

“Earnings missed estimates.”
I better way to look at this might be: estimates miss earnings. When the weather forecast is wrong, it is rare to hear people say “the weather missed estimates”. We just say the forecast was wrong. Finance is the only industry where forecasters blame their poor forecasting skills on reality.

“Earnings met expectations, but analysts were looking for a beat.”
If you estimate that a number will come in above your estimate, then you have a very confused notion of estimation. This is an incredibly common convention that makes no sense, but will often drive short-term stock price movement.

“The [whatever you’re writing about] crisis.”
Most any bump in the road is a crisis in the financial media. It helps sells add space, but it doesn’t offer much in the way of insight.

“He predicted the market crash in 2008.”
He also predicted a crash in 2006, 2004, 2003, 2001, and 1998. This is the see-what-sticks approach to market prognostication, and it has a long and storied history. Any crash prediction should be treated with suspicion; there is no grand cipher for unlocking the short-term future of market movement.

“Stocks suffer their biggest drop since August.”
August was only ten weeks ago.

“It’s time to buy/sell stocks.”
For whom is this advice given? A 35-year-old with a 25 year investing time horizon, or a 65-year-old nearing retirement.

“We’re trying to maximize returns and minimize risks.”
This one gets filed in the obvious department. It’s a good marketing slogan, but to really understand the strategy they have to tell you how they plan to maximize returns and minimize risks.

“Shares fell after the company lowered guidance.”
Company guidance is about as useful as analyst estimates, and such instances prove it. Why use company guidance, why not do the math yourself? Lowered guidance is often a buying opportunity.

“We look where others do not.”
This is said by most investors, therefore it cannot be true most of the time. Again, it’s a great marketing slogan, but be sure to find out where they actually look.

“Is [x event] the next black swan?”
The essence of a black swan event is its complete unpredictability. That’s what makes it so dangerous.

“We’re waiting for more certainty.”
This really means that they want to wait until the investing opportunity passes by. It’s fine to wait for better value, but when economic and market outlooks seem most uncertain, that’s often when value is at its peak.

“The Dow is down 60 points as investors react to news of [x event].” Or “Expect the market to rise/drop when [x event] happens.”
This may be the most common misconception out there. I hear it all the time. The truth is that the same event can happen ten times and the market will react ten different ways. In the short-term, the market is not a rational thinking actor, and it does not react to any event predictably. Nor can one attribute a swing in the market to any particular event, as there are multitudes of events happening at the same time and they are all pulling the market different directions.

“Investment guru [name] says stocks are [forecast].”
Look up that guru’s track record against the benchmark. More often than not, his or her career performance lags an index fund. What market gurus all have in common: they are excellent at selling themselves as market gurus.

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