All Snazz, No Substance? Why Financial Journalists Really Write About Companies

All Snazz, No Substance? Why Financial Journalists Really Write About Companies
Stéphane Renevier, CFA

almost 2 years ago1 min

Mentioned in story

Financial journalists write about profitable ideas, yes, but that’s not their only objective: they’re also aiming to generate clicks. As you can see in the chart above, a recent study found that these journalists tend to write the most about controversial companies, followed by big companies, and then companies with popular products. High growth, share price movement, and a well-known CEO all make press more likely too: it’s no wonder Tesla’s always in the news. The issue is that these things are more likely to be features of a good article than a good investment.

We, as humans, have a tendency to overweight information that’s easily available (the “availability bias”) and fits a clear narrative (the “narrative bias”). So, sometimes we have trouble differentiating between a nice story and cold hard facts. That can impair our judgment and lead to poor investment results: a popular product doesn’t necessarily make a great company, after all, nor does a great company always make a good investment.

That’s not to say you should avoid popular stocks, but that you could benefit from reading the news with a healthy dose of scepticism. Ask yourself whether the author is covering a specific topic because it sells, or because it’s actually a good opportunity. You’ll often find that both are true – but asking this question will help you to reduce your bias. Next time you see a stock in the headlines, pause for a moment and make sure you’re considering it for the right reasons.

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