TUESDAY AUGUST 18, 2009

Financial Media Bias

You hear it every day.  The media is biased and/or too negative. This certainly applies to the financial media as well. One of the reasons for the negativity is the tendency of the media, in an effort to be ‘fair,” to always present both sides of the argument. Sort of like the old Point-Counterpoint bits on Saturday Night Live. Regardless of the percentages in favor or against any argument, there is always a 50/50 presentation of the facts. So, the debate might be over the color of the sky, but there will be two talking heads arguing. One will argue the sky is blue, the other that it is green. A 50/50 split, even though the 99% would agree (I hope anyway) that the sky is blue.


This bias occurs in the financial media all the time. Today, the great debate is whether the recession is over. Most economists believe that the recession has ended or will end soon. Yet, the Point-Counterpoint discussion will have a bullish economist countered with a doomsday economist telling us that Armageddon is just around the corner.

 

My point is not that the doomsday guy is wrong. An 8 out of 10 economic consensus have been proven wrong on more than a few occasions! It is just that investors need to understand the bias the 50/50 split brings to the discussion. They should take the viewpoints for what they are and understand that they are often conflicted points of view. For example, an investment manager of a “short” fund will tend to have a negative outlook. It is their job to be negative! 

 

Does the constant 50/50 viewpoint create a negative bias? I think so. Despite this, as long as the investor understands this, there is valuable information to garner from these biased discussions.

POSTED AT 1899-12-30 10:27:00.0

KEN ENTENMANN, CFA
SENIOR VICE PRESIDENT AND
THE DIRECTOR OF INVESTMENT MANAGEMENT SERVICES

Ken is a Senior Vice President and the Director of the Trust and Investment Services at Alliance Bank, N.A. He has 23 years of investment experience and oversees the management of assets totaling $1 billion. He holds a B.S. in Applied Economics and Business Management from Cornell University and an M.B.A. from the William E. Simon Graduate School of Business Administration at the University of Rochester. He has also earned his Chartered Financial Analyst designation. He is a member of the Executive Committee of the Trust Division of the New York Banker's Association. He is also a director of the Central New York Community Foundation.

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The opinions expressed here do not represent the views of Alliance Financial Corporation and Alliance Bank, N.A. This communication is not an offer or solicitation for the purchase or sale of any security, is for general informational purposes only and does not provide personalized investment advice. When making personal investment decisions you should consult your investment adviser or rely on your own research. Copyright 2008.