Master the Media as Well as the Markets

Physician's Money Digest, February15 2003, Volume 10, Issue 3

The effect of modern massmedia on the movements ofthe markets is a subject worthyof increased study. The technologiesdelivering information at ever-increasingspeeds have proliferatedtoo quickly. As a result, a lag effecthas developed between investors'access to information and their abilityto properly interpret and apply thisinformation. The daily flood ofcountless commentaries, each purportingto speak authoritatively ondaily financial news subjects, is havinga confounding effect on the averageinvestor. According to wealthmanagement expert John Valentine,"Too many voices are leaving investorsbewildered. It is not hard todraw a line of inference between thiseffect and the wild vacillations seenin the highly volatile investment marketsof the past 18 months."

ENDLESS NOISE

The cacophony of the media hasbeen reaching a deafening crescendo.In this age of always-on, informationaccess, finding a moment for quietreflection and digestion of the informationcan be nearly impossible. Thefinancial media, as merely 1 segmentof the overall media, is quite capableof generating an impressive volumeof hype and hoopla. However, whenthe economy suffers, the financialnews becomes the lead story withinthe entire media at large. This has anamplifying effect that brings thenoise level up considerably, like usinga bullhorn while speaking through amicrophone. The information blizzardswirling around today's alreadyvolatile markets all but ensures thatfew can achieve the clarity needed tosee what is really happening.

Customer's

Afternoon Letter

Wall Street Journal

For most of the history of theAmerican stock market, the mediahas been instrumental in conveyingtimely and pertinent information tothe interested investor. In 1884Charles Dow began publishing a"stock average" of America's moststalwart companies in the . His impetus fordeveloping the average was not toassist the financial community.Rather, he wanted to provide a moresimplified way for the public to followthe movements of the market.Interestingly, Dow was himself neithera financier nor a broker. He wasa journalist. As a member of themedia, Charles Dow understood theinfluence journalists could exert overthe minds of the investing public.Dow's industrial average was designed,in part, to draw more peopleinto the investment realm by makingthe process easier to understand andfollow. More people investing meantmore folks would need to buy Dow'spaper to keep track of the averages.Today, nearly 2 million copies of theare printed eachday, Charles Dow's living legacy tothe world of financial print media.

NEWS YOU CAN USE

The results of Mr. Dow's effortsare part of stock market history.Clearly, his industrial average hasendured and remains 1 of the topbarometers of economic climate. Itis a benchmark carefully monitoredby professional and individual investorsalike worldwide. The Dowhas been published in the printmedia since the 19th century, a testamentto its value and pertinence.Providing this information to thepublic daily has done nothing butimprove the ability of investors tomake informed investment decisions.Since Mr. Dow's average was adoptedby the investment world, thousandsof journalists have followed inhis illustrious footsteps. Countlesspublications and letters have beenpublished over the past 125 years,each offering its own perspective.

Why did the explosion in financialjournalism that took place inthe first half of the 20th century nothave the seriously perplexing effectperpetrated by contemporary mediatoday? The answer may be found in2 simple letters: TV.

The development of broadcasttelevision was a seminal event in thedistribution of information acrosssociety. More immediate than theprinting press, more visceral thanradio, television signaled the beginningof near-instantaneous newsdistribution. One of the positive sideeffects wrought by television was thewidespread introduction of personalinvesting to the individual. The proliferationof information enabled bytelevision is partially responsible forthe increase in public participationin the stock market. Centralizedaccess to information from far-flungregions essentially made the worldsmaller. This allowed people to followbroader trends on a macro economiclevel. TV played an indirectyet active role in enabling the averageindividual to track the activity oftheir investments.

GETTING CONNECTED

As the 20th century drew to aclose, TV's successor, the personalcomputer, accelerated the process ofdrawing the public into the investmentrealm. The emergence ofonline trading and automated systemsenabled millions of Americans to participatein the investing process. Realtimestock quotes and a new legion ofinformation outlets provided a newuniverse of data to the investor.

Value

Investing Today

The problem with this rapid technologicalgrowth is that it effectivelyaccelerated participation while simultaneouslydiminishing the amount oftime people spent learning aboutthe process. It also effectively overwhelmedthe investing public withinformation, making it much moredifficult for even the more seasonedmarket players to make decisions.Noted value investor Charles Brandessums it up nicely in his book, . Brandes says, "Transmittinginformation quickly, however,doesn't guarantee that the conclusionsdrawn are accurate. Rapidlytransmitted information may suggestone picture, but a significantly differentone may emerge as the ideas areinterpreted over time."

Professional investors are less likelyto make changes to their portfoliosbased on the barrage of daily financialnews reports, choosing instead to usethe media merely as a way to track thefactual movements of the market overtime. Not so much attention is givento the "sound-byte stock analysts"offering their minute-by-minute interpretationof events, which requiremore than 30 seconds to properlyunderstand and recognize.

John J. Gardner is the founder

and president of Equity Research

& Portfolio Evaluation

Inc, a San Francisco Bay Area

independent research source

for institutional and individual

investors. He is also the founder and president

of The CPA Law Forum of the Greater East

San Francisco Bay. He welcomes questions or

comments at 925-361-4787.