Day-Traders Advising Retirement Savers

What qualifies as a legitimate news source in 2021 is certainly debatable. But certainly, the financial news outlets have figured out how to get your attention. After all, this is the only money you have, and it’s definitely all at-risk if you don’t stay tuned until after the commercial break….

Unfortunately, the financial media is as conflicted as a non-fiduciary financial advisor. They need to present the information in a way that maximizes the monetization of the 24-hour news cycle. You’ve probably never felt compelled to watch very long when a pundit or news anchor describes the “average”, “medium”, or “moderate” outlook for the stock market in the coming weeks or months. However, you may have felt obliged to stay glued to the screen when claims of “warning signs that could indicate a BIG market correction” start vying for your attention. To most, it seems like a pretty important public service announcement. However, the free advice from the news outlets on both TV and social media is a reminder that when a product or service is offered for free, the real product is us!

Advertisers paid $66.5 Billion on TV advertising in the U.S. alone in 2020. As our eyes shift from television to our smartphones and computers, the ad dollars follow. It’s estimated that by 2025, online ad spending will be 2.5 times that of television. i CNBC, CNN, FOX, and others must continuously feed their parent companies’ coffers with the ad revenue they can demand based on the ratings they receive. Those ratings depend on generating deep, emotional reactions from viewers. Fear, greed, and anger are some of the primary motivators that keep us engaged. Many of you own shares of media giants like Google and Facebook directly or indirectly. And you’ve benefited immensely from the surge in their stock prices driven primarily by their ability to demand top dollar for your attention.

As providers of holistic financial guidance, it’s prudent to point out one of the oldest tricks in the book, used particularly well by the financial media to keep you tuned in and logged on. You might think of it as the withholding of perspective and context. For example, if you’re a day-trader, you’d be wise to have Bloomberg or CNBC broadcasting or streaming in the background throughout your workday. Because if you’re trying to buy Bitcoin or Facebook on Tuesday and sell it to someone else on Wednesday morning, you need to be tuned in to every minute of market data and investor sentiment.

But if you’re accumulating funds in your 401(k) to retire in 10 years, at which time you’ll start spending 3% of it each year for the remaining 30 or 40 years of your life, you would be wise to treat the “look over here, now!” media tone with an air of indifference. For instance, CNBC or Fox Business has been known to display stock market charts like the one below as a backdrop to a conversation:

Enter the special guest who hints at the potential for “a depression” or “black swan” event, and now they’ve got your attention. That’s a scarylooking chart, even if it does display just a 2- year period and you’re investing for a 50-year time frame. Withheld once again, is context and perspective. After all, if they had provided a chart like the one below (showing 7 years), would you keep watching?

How about the one below (about 30 years)…..?

Now it’s tough to even figure out what the news story is…and how about a chart representing an investor’s lifespan (below)?

Well, geez, CNBC, now I need a magnifying glass! The media won’t say things like “don’t worry about this kind of thing if you’re a long-term investor, we’re really just talking to the day-traders here”. Because there aren’t enough day traders to move the advertising/ratings needle. So they omit that part knowing darn-well they’re spooking the everyday investor into going to cash in their 401(k) and telling their friends at the water-cooler to do the same.

And weeks, months, and years, later, you won’t find them sharing an updated chart and bringing that same guest on to explain how the story ended and why they were so woefully incorrect in their doom and gloom prediction (as seen below).

Why? Lest they discredit them. They’ll need to go back to them for the next sensationalized prediction when they need a ratings bump. Historically, the stock market has always been a “two steps forward, one step back” mechanism. Long-term investors make their money on the 2 steps forward, the media makes theirs on the one step back.