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7 Tips for Spotting “Fake” Financial News

March 9th, 2020 | 4 min. read

By Jacob Schroeder

Spotting fake financial news

Unless you happen to live under a rock with no cell signal, your brain processes an extraordinary amount of information every day.  

A 2011 study found Americans consumed five times as much information as they did in 1986 – the daily equivalent of about 174 newspapers. Outside of work alone our daily intake is 34 gigabytes of information, or 100,000 words, according to a University of California, San Diego report. That’s roughly the same size of To Kill a Mockingbird (100,388 words).

It sounds like an exaggeration, until you consider we carry around devices everywhere with greater processing power than the computers used to help send people to the moon.

Our brains, unfortunately, aren’t fully equipped to handle such a deluge of information. This makes it difficult to decipher fact from fiction, or what is relevant to you and what is not – an important distinction when your money is at stake.

Daily headlines generally have no bearing on one’s long-term financial goals. So, for long-term investors, most financial media is noise. But these days, the local paper and evening news has been replaced by posts, texts, tweets, podcasts, memes, videos, etc.

The advent of social media has led to a proliferation of false information, famously referred to as “fake news.” For our purposes, we can loosely define “fake” as in misleading, highly biased and/or utterly unrelated or unhelpful to an individual investor’s situation.

Some news stories are designed to leverage our emotions, which can make them dangerous when our emotions are already high, such as during a market downturn or a recession. It can cause investors to consider making rash decisions that prove costly.

The simplest way to avoid the noise is to turn off your devices and completely tune out. But it’s far more realistic – and easier – to learn how to navigate today’s information landscape. 

Here are seven tips to help you spot “fake” financial news.

Proceed with caution when predictions are made

Many financial articles cover what may happen in the future. Will the market rise or fall? How will the economy perform this year? Will the Federal Reserve raise or cut rates?

This is fine, expect for the simple fact no one can accurately predict the future. There are an innumerable number of things that could occur. So, any article that makes predictions or discusses only one scenario out of many – the market is going to crash, expect another year of growth – should be taken with a grain of salt.

When thinking about your financial future, it’s far better to look to long-term trends. For example, the stock market goes up more than it goes down, and expansions on average last more than three times as long as recessions.

Investigate the source

A telltale sign of an article’s legitimacy is who published it. Did it come from a real media organization? Was it created by a distinguished individual, such as a recognized economist or researcher, on their blog? Before giving a piece of information credence, take that extra step to investigate the source.

Social media is where a lot of purposefully false media is exchanged. So, it’s important to remember there isn’t a team of editors and fact checkers vetting each post.

Further, we are susceptible to confirmation bias – the tendency to interpret information as confirmation of our existing beliefs. So, you may find yourself gravitating toward media sources that match your own viewpoints. Therefore, read broadly. It will help you think of issues in more informed and objective frame of mind.

Determine if the author has an agenda

Today, content is king. A lot content is published online not to educate people but to generate sales. Businesses even pay to publish articles right alongside those written by actual journalists. This certainly includes financial media. A commodities trader, for example, may write about an impending crash in stocks in hopes of pushing gold prices higher.

So, exercise a healthy dose of skepticism.

Ask yourself: Does the author have an incentive for publishing this information? Does the author provide good evidence? Is the data presented in context? Do they prove their work and show how they came to their conclusion?

Consider the shelf-life of the topic

Misinformation takes advantage of breaking news stories and hot-button issues. Consider how important the information will be to you in the future. Is this a short-term event made into a bigger deal than is necessary? Or, is it a complicated topic that needs further consideration?

Immediate news stories will generally have little to do with how you plan to save and invest for decades in order to retire. Knowing the market is lower today than it was yesterday won’t make a difference. But sweeping tax legislation on retirement account might. 

Question an article’s conclusion of any study

The media often overstates the conclusion of studies, if not completely misinterprets them. Or, they may fail to provide important qualifiers, such as the length of the study, its sample size and how the data was compiled.

One day red wine is good for our health; the next, it causes cancer.

It is much more effective for news outlets to grab your attention with definitive statements than the more rounded explanations found in most scientific journals.

A case in point: the popular research paper by Angus Deaton and Daniel Kahneman that supposedly says happiness tops out at $75,000 in annual income. The truth is that the study suggests our day-to-day emotional well-being may not increase after reaching $75,000 in income. It doesn’t say a person earning $1 million isn’t any happier or more satisfied in life than someone making $75,000.

Ask yourself: does this have anything to do with me?

A simple metric to use when reading financial news is to ask if the information is at all relevant to you.

If you’re a long-term investor with a diversified portfolio of mutual funds, then stock tips have little value to you. If you’re retired with enough money projected to keep you comfortable for the next 20-30 years, then you probably don’t need to click on that article about Bitcoin.

Ultimately, a financial news story is only as important as its relation to your personal financial situation.  

Consider the context

The financial world is a heavily data-driven world. You have to pay close attention to the context of how it is presented. The best example is daily market performance. A small percentage change in the Dow Jones Industrial Average can look substantial when given as points.

Further, if you see financial headlines talking about the rarity of an event, take it with a grain of salt. Capital markets have a long enough history to make any data point seem exceptional if you want to. To hear the market was down 10% for the day is notable. But to hear the market has never in its history been down 10% on a Monday during a leap year is meaningless.

As Nobel-prize winning economist Ronald Coase said: “Torture the data, and it will confess to anything.”

When it comes to your financial life, don’t believe everything you hear. You should make financial decisions only when you’re fully confident that you understand the situation, or under the professional guidance of a trusted financial adviser. In most respects, if you have a financial plan – and you should have a financial plan – you can essentially filter “fake” financial news by ignoring financial news altogether.