It's a lot of chaff, where's the wheat?
With lots of avenues for business news, the challenge is to separate real information from the noise
by Vivek Kaul/DNA Money
“Happily, unlike the poor husbands, the market is capable of rebirth”
– John Allen Paulous
The clock was about to strike 12. Kunal Bajpai could not sleep. He switched on the television and zapped through the channels. There was nothing interesting. The situation reminded him of a Bruce Springsteen song, “We switched ‘round and ‘round ‘til half-past dawn, There was fifty-seven channels and nothin’ on”. Bajpai finally settled down to watch one of the many business news channels that have sprung up lately. At twelve in the night, there was no live business news. The repeat telecast of the day’s news was on. Last Week, the stockmarket indices had fallen — the Sensex by over a 130 points and the Nifty by around 40 points. The beautiful lady anchor was speaking to two analysts and had put forward the perennial question, “Why have the markets fallen today?”
This question was one of the two that formed her repertoire. The other being “Why have the markets risen today?” “Could there be a job easier than this. All it involved was looking good and sounding smart,” wondered Bajpai. The analysts spend considerable time explaining why the market had fallen. “Did such a small fall deserve so much of coverage,” Bajpai wondered.
In his book, Fooled by Randomness, Nassim Nicholas Taleb says, “In that sense, the description coming from journalism is certainly not just an unrealistic representation of the world but rather the one that can fool you the most by grabbing your attention via your emotional apparatus — the cheapest to deliver sensation.” News on the stockmarket fluctuations fulfils this criterion. And as far as journalists are concerned, Taleb again has the last word. “People do not realise that the media is paid to get your attention. For a journalist, silence rarely surpasses any word.” Once the anchor had finished discussing the falling market, she started discussing the quarterly results, which have started coming out. One of the bigger companies had missed the analysts’ estimates for the quarterly earnings. And the lady anchor puts this forward to the same set of analysts, to discuss. Investors, analysts and the business media, at times, go overboard with their focus on quarterly earnings.
At times when companies miss the earnings estimates by a small target, investors tend to react as if the company has almost gone bankrupt and sell the stock, which drives down its price. And the business media is certainly to be blamed for some amount of this overreaction.
As John Allen Paulous points out in his book, A Mathematician Plays the Stock Market, “Overreactions are abetted by the all-crisis-all-the-time business media”. And this is really uncalled for. Paulous further points out, “Just as beauty and academic quality don’t change as rapidly as ad hoc lists and magazine rankings do, so, it seems, the fundamentals of companies don’t change as quickly as our mercurial reactions to news about them do”.
With the advent of so many business newspapers, magazines, websites and TV channels, there is a surfeit of news available. But the challenge now is to separate information from noise. And till that happens people will continue to believe that the next batch of business news that comes along will make a difference to their view of the market.
(The example is hypothetical)
