Media pushing bad news blinds investors

December 20, 2012, 3:06 pm Michael Pascoe Yahoo7

The media focuses on fear because it sells, especially in an uncertain climate.

Here’s a nasty little admission: we journalists generally treat you as mugs, putting the lure of a catchy headline and a scary story ahead of the need to inform and educate. If it’s a choice between winning eyeballs with something a little sensational and providing a public service by dispelling fear, the eyeball catchers normally win.

That’s not just a feature of the tabloid media – the most august financial pages are just as guilty of the crime, albeit a little more subtly.

A quick example: it was widely reported this week that a United Nations study found China’s slower growth rate in 2012 had “sliced US$2.4 billion off Australia’s economic growth”. And there was a worse figure for the Asia-Pacific region – US$49 billion in growth had been lost.

Yes, that sounds a bit dire, a little worrying. It’s also largely tosh. Australia has, roughly speaking, a US$1.6 trillion economy – the extra US$2.4 billion that we didn’t grow by is a wee fraction. By way of comparison, we gambled $161 billion in the last year for which there are reliable figures (2008-09), collectively losing nearly $20 billion of it.

But that “US$2.4 billion sliced off” was about the worst-sounding figure in the report and it therefore got all the attention.

Buried down in the body of the story was something much more important, especially for investors: the same UN study reckoned that China’s growth rate would come in at about 7.8 per cent this year and rise to 8.2 per cent in 2013.

How good is that? The world’s second largest economy, having grown by an extremely respectable 7.8 per cent this year, is thought to be picking up steam in 2013.

Oh, sorry – you’re probably still thinking that China’s economy crashed in 2012, given the way it has been reported in Australia. No, China grew very nicely indeed, just not as outrageously quickly as it had in the immediate aftermath of the GFC. It is almost unbelievable that the world’s second biggest economy was able to grow by such a fast pace this year, but most of the reporting treated growth of around 7.5 per cent as some sort of disaster.

This is just one small example, but unfortunately it’s often the norm. Basically, fear sells, especially in an uncertain climate.

Some purveyors of financial information have a vested interest in scaring people. If, say, you’re flogging an investment newsletter or email for several hundred dollars a year, generally containing the sort of information available for free elsewhere, you will need to prey on a mixture of the two key financial emotions: fear and greed.

Because many investors are still feeling a bit burnt by the market’s fall from its pre-GFC high, greed is taking a back seat to fear. Thus you’ll play up your alleged ability to warn of pending disasters. The more fear you can generate, the better your chances of creating sales.

When the market has fully turned and the bulls are running, the same organs are most likely to be appealing to greed, promising tips on the “next big thing” that will make a fortune. It’s called selling people what they want to hear.

Most of the media isn’t in as obvious a financial conflict – it’s just the basic premise of news: bad news is good news, bad news sells.

The challenge for the astute reader is to look through the headlines for the underlying story and, particularly for investors, at the forward-looking story rather than dwelling on the past.

This year is finishing with a stock market rally that is looking forward with a bit more optimism than we’ve been used to. Some of the global fears have abated, despite the odd fiscal cliff threat and whatever the Europeans are fumbling with. There remain worries, but that is normal. The trick is to look through the headlines and work out if those worries are exaggerated or manageable.

More from Michael Pascoe:
Forget Europe and the US, start worrying about Japan
Australia's stronger immigration - the other inflation dampener
States and retailers fooling themselves over GST

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