August 18, 2006 –
Mainstream news is the famous bandwagon jumper. It’s not uncommon for headlines such as “Bull markets roar ahead!” to be followed by “Bear markets spell disaster for investors” to be followed by “Emerging markets booming!” to be followed by “Emerging markets spectacular run is over!” to be followed with “Gold: the next safe investment haven?” to be followed with “Gold has lost its Midas touch!” (i.e. Timothy Middleton, on the MSN money webpage, called gold a “poor investment” in February of 2006) all within weeks, sometimes just days, and yes, sometimes within just hours of each other.
For news agencies, the name of the game, just as it is with any other company, is money. News media companies earn the majority of their money from advertising revenue, much of it increasingly online. That is why you get such ridiculous headlines as news companies fight for the attention of the average web surfer. More proven hits to their site produces more advertising revenue for the company, whereas normal, boring dull and more truthful headlines would not do the trick. Therefore, the wildest headlines hit the stage.
To steal an analogy from one of my favorite movies, The Matrix, I strive to enlighten you with the red pill. We provide information that you will never read about in Bloomberg, Reuters, the Wall Street Journal or the BBC and news that they will never hear about on MSNBC or CNBC. I’ll take you “deep down the rabbit hole” to uncover the truth. We’ve found in our experience that the average individual loves to declare themselves “experts” without so much as even peeking halfway down into the rabbit hole to discover the truth. Instead, they eat up the wild headlines fed to them by major media and are content to fill their bellies with misinformation that is bound to produce a severe case of economic indigestion.
What major media accomplishes, through their irresponsible headlines (that maximize their revenues), is to convince the average investor to do the worst possible thing — to enter and exit way behind the curve on their investment decisions.
Financial Headlines are Always Laggards
Have you ever noticed that their headlines of gloom and doom never warn people of appropriate preventive actions before they happen and that their screaming headlines of bull markets never predict them beforehand so that investors can reap the rewards? The only problem is, as laggards in this regard, the news media encourages investors to panic and sell out at market lows and to plunge into assets whose runs are nearing dangerous heights at their peak. If you ever wonder why the average investor buys assets at their peak and sells at their lows over and over again, just look at the correlation of news headlines and the sheep herd’s actions.
The key point that we make is that you can never make money in any market by perpetually investing behind the curve. To invest ahead of the curve you have to dive way down the rabbit hole and gather information not released in the mainstream media. Sometimes, the statements made by random people we talk to about the future of the U.S. dollar, the stock markets and so forth astound us. We are not so arrogant as to think that we are always right in our predictions. But we do pride ourselves in digging deeper than anyone else out there to uncover the facts.
In fact if we uncover opposing viewpoints that have merit, we always carefully listen. What astounds us, however, is the amount of money people place in significant financial decisions that are driven by views solely constructed on flimsy, surface analyses of major media – analyses that a mere ten minutes of research could punch holes wide enough to drive Mack trucks through. What astounds us is the tenacity that people cling to beliefs founded on major media reports without performing any additional research to discover the real truth. We meet people routinely that tell us they strongly disagree with us about future dollar valuation but yet can not tell us a single thing about what currencies are loosening or constricting in supply globally. They strongly disagree with us because MSNBC or Reuters online told them what to think and they believe it.
For example, when gold prices again take a short-term dive sometime soon, people will point to this and discount my views on gold’s long term direction (even though I have repeatedly predict future short-term corrections during this gold bull run). It is because people have been conditioned so greatly by the media to assume a “right now” mentality. Everybody thinks that if things don’t happen exactly as you predict right away that you are wrong. That’s how the major media can get away with their wild headlines. “Markets tanking!” they scream, and the next day the market sheds another 1%.
Most people think, “My God, they’re right, I’d better sell everything now.” And they do, only to miss a 2%-5% bounce that happens in the global markets during a single day in the following week. And when this contrary event happens, the major media still misses the point. About 95% of the major media I read during this time claimed that “less hawkish” U.S. Federal Reserve comments were responsible for the strong one-day bounce we received in the global markets a couple of weeks ago. In reality, millions of people that had shorted the market and were forced to cover their positions with massive buying when the market started to turn upward is what caused the bounce — not “less hawkish” comments by the Federal Reserve.
And they totally missed the point regarding the steep corrections in the stock markets and commodities when they happened. These events were created by the fiscal policies implemented by the U.S. Federal Reserve and the world’s central banks.
The Right Now Mentality Will Invest You Into Financial Ruin
That’s the whole problem with the “right now” mentality people have. If they don’t see immediate results, then they think you are wrong. That’s how the media capitalizes on increasing readership, and thus, their revenues. People base their investment decisions on the immediacy concept, but only it’s impossible to make money in any asset by doing so. To illustrate this point, let me tell you a short story. Before China became a “hot” market with the large investment houses, I told a friend to invest in a certain Chinese company because I had dug far enough down into the rabbit hole to understand this company’s potential.
Within a month, the company was down 8% or so, and she jokingly said to me “I should short what you recommend”, not fully understanding why I had recommended this company. Within 18 months this company’s stock price had risen by over 100%. The point of this story is that when you are ahead of the curve, because it’s impossible to buy at the exact bottom of assets, often your decisions initially look poor to those that don’t understand the rationale behind your recommendations. On the other hand, the blaring recommendations of those that use the “immediacy” effect appear to be right on the money as for the next day or perhaps even couple of weeks they pan out. Only this equation sharply reverses after several days or weeks, and those that thought they were losers become great winners and those that thought they were winners become great losers.
If you dig deep into the rabbit hole, it is inevitable that, at times, your decisions will not seem as those that follow the immediacy strategy of investing. While those that follow major media, at first are rewarded in the immediate, they are always almost hurt severely as time eventually reveals the true merit of this foolish strategy. When I earned my MBA, I took an elective course in journalism. My professor, once one of the highest ranking Latina journalists in America at the time, told me, “When it comes to news, if you only seek news from the major media, the New York Times, the London Times, Reuters, Bloomberg, MSNBC, etc., you can never consider yourself educate on any subject — war, politics, or economics.”
That comment, which I learned more than a decade ago, was probably the singular most important concept I learned at business school (ironically in a non-MBA course), and has been the difference between me earning 20% to 40% in the stock market annually versus 6% to 8%.
J.S., here’s where you finally went bad. Keanu Reeves in the Matrix? Gimme a break! How can you promote such crap? Go watch the Shaw Brother’s Eight Diagram Pole Fighter and then tell me how you can possibly ever say that the footsie action in the Matrix was real fighting? With a comment like that, are you sure you’re Asian? Your “dojo” pass just got revoked.
But on to the important stuff. The U.S. Navy SEALs have a saying that the easy way out is often not the safest route. You could say the same about investing. The easiest thing is to pick up the Wall Street Journal and sit on your fat butt, pick up the remote, and watch the Bloomberg Report to guide your investment decisions. So go ahead and do the same thing as 99% of all other investors if you want to earn the same returns as 99% of other investors. But if you want to earn the returns of the top 1/2 of 1% of all investors, you can’t take the easy route. You have to take the difficult one, the one that requires a lot of digging to understand what is really going on in the world economy.
Thanks JKIM