President Trump’s popularization of the term “Fake News” has further muddied the water on its true meaning and implications as opposed to spin, narrative, and the context that inclines you to believe a specific viewpoint. What is Fake News? Besides the Black/White definitions there are many shades of Gray and in-between. Let’s begin with the Cambridge Dictionary definition:
“False stories that appear to be news, spread on the internet or using other media, usually created to influence political views, finance, economic, or as a joke.”
In 1797 a French philosopher predicted that a free press would advance knowledge and create a more informed public. The following year US President John Adams scoffed.
“There has been more new error propagated by the press in the last ten years than in an hundred years before 1798.”
Earlier echoes of John Adams’ frustrations can be found in laments by figures like Thomas Hutchinson, a British loyalist politician in a sea of American revolutionaries, who cried that the freedom of the press had been interpreted as the freedom to ---- “Print every Thing that is Libelous and Slanderous.”
In more recent times --- after World War 11, as the Cold War was getting underway, the CIA wanted to take the fight into the Russia’s backyard. In 1950 they created Radio Free Europe, a government-sponsored broadcasting station. The objective was to provide unbiased news for Eastern Europeans living under the USSR Communist curtain. In fact the CIA used it to wage subversive campaign to weaken Communist governments behind the Iron Curtain.
Today’s post-truth media environment carries voices from the past. The earlier crusade blasted all information from enemy sources as lies and deceit --- implying Fake News. This counter-propaganda sought to inoculate the public from being receptive to anything said by the other side. From a very early age this shaped Vladimir Putin’s worldview. Russia has long tried to claim Eastern Europe as its sphere of influence. As Moscow hated the Radio Free Europe meddling then, we are experiencing a reciprocal meddling now in the form of 2016 US election hack ---- as well as subsequent hacks. Is this Russia's payback?
In the Financial Review, December 19, 2016 --- Stanley Fish, professor of law at Florida International University and a visiting professor at the Benjamin N. Cardozo School of Law (And author of many books) quotes:
“This wholesale distrust of authoritative mechanisms leads to the bizarre conclusion that an assertion of fact is more credible if it lacks an institutional source. In this way of thinking, a piece of news originating in a blog maintained by a teenager in a basement in Idaho would be more reliable than a piece of news announced by the anchor of a major network".
Focusing away from the political arena let's look at the Fake News influencing the Financial and Economic environment.
Back in the good old days --- not too long ago --- faxes and message boards were used to defraud investors. Today the methodology has not changed but it has become increasingly more complicated and increasingly amplified by the internet.
Researchers from the University of Luxembourg studied the effect that the financial press can have on investors’ decisions – both negative and positive impacts.
Eighty participants with a background in economics were shown various news items about stocks, with the companies’ names anonymized. Variants of the reports contained either positive words (“healthy”, “encouraging”) or negative words (“devastating”, “shocking”) but the information was otherwise the same. The participants were then asked to forecast the performance of the stocks and, even though the information may have suggested otherwise, the economists were influenced by the language chosen with positive evaluations from the positive reports and negative views concluded from the negative reports.
Reported in the Telegraph Business Tim Wallace March 31 2018
“A major study of tens of millions of tweets over two years found that the sheer volume sent by “bots” helped to drive shares in FTSE 100 companies up or down for short periods, effectively moving markets. Tweets sent by humans typically had a positive impact on stock prices while those sent by robots were more often negative, according to research presented to the Royal Economic Society by economists Oleksandr Talavera, Rui Fan and Vu Tran.”
From Yale Insights --- Marina Niessner --- Does fake news sway financial markets?
“Marina Niessner, a finance professor at Yale SOM, wondered whether these promotional articles—which she terms “fake news”—affected financial markets. Many individual investors rely on investment websites for information about firms’ performance; if enough of them bought a stock because of fake news, it would cause the price to rise.
On the other hand, perhaps the market would self-correct. Professional investors would presumably be more likely to recognize deceptive articles than individual investors; if fake news caused prices to rise, they could quickly sell stock and drive the price back down.
In a recent study, Niessner’s team classified articles from the financial websites Seeking Alpha and the Motley Fool as real or fake. The researchers found that after fake news about small firms was published, the companies’ stock prices temporarily rose and then fell. The deceptive articles often coincided with press releases and insider trading, suggesting that those firms tried to artificially inflate prices and sell their stock in a “pump and dump” scheme. For small companies, “these knowledge-sharing platforms do seem to matter for financial markets,” Niessner says. “People get easily fooled by fake news.”
The misleading articles may have dampened people’s trust. After a scandal about deceptive articles on Seeking Alpha broke in 2014, the website’s real articles appeared to drive less trading activity than they had in the past. “The presence of fake news makes us more wary of trusting real news,” says Niessner, who collaborated with Shimon Kogan at the MIT Sloan School of Management and Yale SOM’s Tobias Moskowitz on the work.”
There is a real risk for Investors where several cases of high profile companies targeted online by hoaxers with potentially damaging impacts on their share prices. Starbucks, Costco, Microsoft and beauty chain Ulta have all suffered fake news stories which could have left investors concerned about the direction of their businesses. Brooke Binkowski, managing director of fact-checking site Snopes.com told the Financial Times:
“It hurts businesses financially and it also makes things toxic for them by destroying trust and creating an atmosphere in which people don’t know who they can trust,”
Transparency must always be evident. Stephanie Avakian, Acting Director of the US Securities and Exchange Commission, Division of Enforcement.
"If a company pays someone to publish or publicize articles about its stock, it must be disclosed to the investing public: These companies, promoters, and writers allegedly mislead investors by disguising paid promotions as objective and independent analyses"
One easy way to quickly spot qualified analysis or publications --- look at the disclaimers, bibliographies, back-up notes, track record of the author (s), etc. You may or may not agree with the conclusions as it is an opinion. Nevertheless, it is a documented opinion that you can easily research to make your own trusted judgment.
24/7 calls, stock picks, forecasts and opinions are broadcasted by the media --- without any worry of accountability for what is said or written. Who monitors them and the accuracy of their prognostications?
Many investors have been fooled into believing that keeping up with today's financial headlines is a prerequisite for achieving their financial goals. But separating the fake news from actionable information is a daunting task for investors. Stocks are long-term investments and when investors get caught up in the ever-changing emotional excitement created by financial journalism, bad things can happen. The focus on performance and reinforcing the fake proposition that investing is a timing and selection process --- "Buy Now". These articles and comments have a certain amount of logic behind them --- assuming you accept the fake proposition that outperformance is a legitimate financial goal. The financial media will never admit that it is impossible to make sense out of the day-to-day activity in the markets. Yet each day they try and, more often than they'll admit, turn their audience into speculators who buy what's hot and sell what's not.
Wise investors do just the opposite by periodically taking some profits form their outperforming asset and redeploying them to undervalued assets --- thereby maintaining the portfolio allocation contained in their Financial Plan.
Don't get me wrong there are some excellent journalists and pundits. They conduct their due diligence effectively and offer their opinions. Sometimes they are not given enough prominence and air play time. Sometimes their writings are not highlighted enough or are buried in the back of respected journals and publications --- because their message or opinion may not be perceived as sexy enough for the greater audience that wants the whole story in a byline or paragraph. The best advice I can provide it to look for those who teach and share their experiences and hard-won expertise. Charlie Munger and Warren Buffett are perfect examples. Investors need to distinguish between the empty calories --- rumor mills, gossip, idle speculation and genuinely useful financial and market information.
Fake News may be foolish, but one's reaction needed not be so.
Yet there is another side to this discussion. It's a gray area but it will always be gray --- diverging and educated opinions. Not necessarily readily available or widely disseminated in the general media --- Radio, TV, Cable, Internet.
A simple example of two Equity Analysts looking at --- say Telsa. Both analysts have access to all the available information. Each has likely talked to Elon Musk and his executive team. Each has carried out his own due diligence not only on the company but also the auto industry and economics' encompassing the auto industry globally. Each comes to a very different conclusion as to the future viability of Tesla. These are legitimate source backed conclusions. Who is right only time will tell --- but investors will be driven by these opinions to either buy or sell. Some minds will be changed -- as it should be.
Even with deep analysis, by the best, will not guarantee future outcomes. There is a reasonable level of predictability and probability of outcome --- especially in seasoned areas or business. With newer technology and innovation businesses, the predictability factor diminishes considerably. For every Amazon and Apple there is a vast graveyard of failed technology and innovation businesses (Zealous expectations, timing, funding issues, poor management, etc. may have been responsible). As for the pundits who provided most of hype, where are they today and who has held them accountable?
Is it inevitable that all of us are and will continue to be caught up in Fake News? Eli Priser, in his book, The Filter Bubble: How the New Personalized Web is Changing what we Read and How we Think:
"The filter bubble will often block out the things in our society that are important but complex or unpleasant. It renders them invisible. And it's not just the issues that disappear. Increasingly, it's the whole political process".
It is often forgotten that the financial media is in the business to server its advertisers, not its readers. Checking less certainly happens with editorial staff as breaking stories mean traffic and revenue. Unfortunately even at the best of times there are unintended consequences. Aside from driving a specific editorial narrative, political or financial, the end product a capsulated version of the story or analysis, can and does impact our daily thinking process.
The more time we spend critically seeking reliable sources the less we will be dealing with Fake News. The opinions we form will be factually stronger and more relevant. Here are some thoughts on what to look for:
Singapore’s Nanyang Technological University came up with distinct definitions of fake news after examining 34 academic articles that studied the term between 2003 and 2017 in the context of the United States, as well as Australia, China and Italy:
“The difficulty in distinguishing fabricated fake news occurs when partisan organizations publish these stories, providing some semblance of objectivity and balanced reporting,” the researchers note.”
1. Look at the source, content and Framing
2. Compare Credible Channels --- Find similar content form a trustworthy source and compare them.
3. Look for telltale signs --- Ambiguous or loaded words, exaggerated statements, badly doctored photos, poor grammar or typos.
Fact-checking organizations can help suss out the authenticity of an article --- such as FactCheck.org, PolitiFact, and Snopes.
Cheers John