{"id":3193,"date":"2015-01-09T15:17:58","date_gmt":"2015-01-09T09:47:58","guid":{"rendered":"http:\/\/teekhapan.wordpress.com\/?p=3193"},"modified":"2015-01-09T15:17:58","modified_gmt":"2015-01-09T09:47:58","slug":"3193","status":"publish","type":"post","link":"https:\/\/vivekkaul.com\/2015\/01\/09\/3193\/","title":{"rendered":"The stories that business media and market analysts tell us"},"content":{"rendered":"

\"bullfighting\"<\/a>Vivek Kaul <\/span><\/span><\/span><\/p>\n

Over the last few days I have had great fun watching business news channels. After the BSE Sensex crashed by 855 points or over 3% on January 6, 2015, all kinds of explanations have been offered for the fall by the business media in general and market analysts in particular. Greece will soon be in major trouble. The dollar is rising against other currencies. The global cues are not good. Oil price has fallen to below $50 per barrel. This means that the world is entering an era of deflation (Deflation, a scenario of falling prices, is the opposite of inflation, and I am amazed how easily market analysts who appear on television use this term). The Modi effect is slowing down. The foreign investors need to realign their portfolios with the changing global economic scenario. And the proverbial, Indian economy is not doing well and corporate investment is needs to pick up. Two days later on January 8, 2015, the Sensex rallied 366 points or 1.4%. Market analysts and the business media told us that value buying was now coming in and this had led to the rally. What amazes me is that investors suddenly saw value in stocks with the market falling by just 3%? Benjamin Graham must be turning in his grave. He clearly never would have envisaged a day like this. Also, the investors did not see value on January 7, 2015, when the Sensex was almost flat. It fell by around 78.6 points or 0.3% on that day. But they suddenly saw value on January 8, 2015. What changed overnight? That no market analyst bothered to explain. In the Indian context, the foreign institutional investors have been driving the market for a while now. On January 6, 2015, they net sold stocks worth Rs 1,534.23 crore. But this was neutralized to some extent by domestic institutional investors buying stocks worth Rs 1,079.6 crore on the same day. Markets go up. Markets go down. And just because analysis exists doesn’t mean we analyse everything. I haven’t heard a single market analyst or a journalist in the business media till date say that today’s stock market movements were due to random fluctuations. As John Allen Paulos writes in <\/span><\/span><\/span>A Mathematician Reads the Newspaper<\/i><\/span><\/span><\/span>: \u201cAlmost never does a stock pundit say that market’s or a particular stock’s activity for the day or the week or the month was largely a result of random fluctuations.\u201d With so many numbers and stories going around it is always possible to say something which on the face of it sounds very sensible. \u201cThe business pages, companies’ annual reports, sales records, and other widely available statistics provide such a wealth of data from which to fashion sales pitches that it’s not difficult for a stock picker to put on a good face…All that’s necessary is a little filtering of the sea of numbers that washes over us,\u201d writes Paulos. This is precisely what has been happening over the last few days. The information and analysis being provided is essentially adding to the clutter. As Nassim Nicholas Taleb writes in <\/span><\/span><\/span>Fooled by Randomness<\/i><\/span><\/span><\/span>: \u201cThe difference between noise and information…has an analog: that between journalism and history. To be competent, a journalist should view matters like a historian, and play down the value of the information, he is providing.\u201d This Taleb, feels can be done by saying: \u201cToday the market went up, but this information is not too relevant as it emanates from noise\u201d. But in an era of 24 hour news channels this is easier said than done. \u201cNot only is it difficult for the journalist to think more like a historian, but it is, alas, the historian who is becoming more like the journalist [and to add my two bit so are market analysts]…If there is anything better than noise in the mass of \u201curgent\u201d news pounding us, it would be like a needle in a haystack. People do not realize that the media is paid to get your attention. For a journalist, silence really surpasses any word,\u201d writes Taleb. To be fair to the business news channels, the business newspapers follow the same formula of trying to come up with an explanation for market movements all the time. It’s just that since they do not have to react instantly to everything, some amount of noise gets filtered out in their reporting. A few years back I happened to <\/span><\/span><\/span>interview valuation guru Aswath Damodaran <\/span><\/span><\/span><\/span><\/span><\/a>and asked him a fairly straightforward question: How much role does media play in influencing investment decisions of people? The reply he gave was very interesting: \u201cMedia and analysts are followers…Basically when I see in the media news stories I see a reflection of what has already happened. It is a lagging indicator. It is not a leading indicator. I have never ever found a good investment by reading a news story. But I have heard about why an investment was good in hindsight by reading a news story about it. I am not a great believer that I can find good investments in the media. That\u2019s not their job anyway.\u201d This is something that investors need to keep in mind while following the media in their quest to understand why are the markets moving the way they are. It is worth remembering that business news channels and the business newspapers need to operate even when there is no major news. As Maggie Mahar writes in <\/span><\/span><\/span>Bull\u2014A History of the Boom and Bust, 1982-1984<\/i><\/span><\/span><\/span>: \u201cThe perennial problem for the media is that balance sheets do not fluctuate on a daily basis. Once a reporter has laid out a company’s assets and debts, how does he fill the news hole the next day? Only by tracking market’s daily performance.\u201d Analysts help the business press in filling up the daily space. This is something that former Morgan Stanley analyst Andy Kessler writes about in his book <\/span><\/span><\/span>Wall Street Meat<\/i><\/span><\/span><\/span>: \u201cThe market opens for trading five days a week\u2026 Companies report earnings once every quarter. But stocks trade about 250 days a year. Something has to make them move up or down the other 246 days [250 days \u2013 the four days on which companies declare quarterly results]. Analysts fill that role. They recommend stocks, change recommendations, change earnings estimates, pound the table\u2014whatever it takes for a sales force to go out with a story so someone will trade with the firm and generate commissions.\u201d And once analysts have a daily opinion, the media gets some <\/span><\/span><\/span>masala <\/i><\/span><\/span><\/span>to fill up its daily space. The trouble is that while the media ends up filling up space, investors who follow the media are bound to end up confused if they follow the media on a daily basis. It is worth remembering here what hedge fund manager Bill Fleckenstein told Mahar: \u201cThe trouble is that investing doesn’t lend itself to play-by-play reporting…Speculation does, but investing doesn’t.\u201d The column originally appeared on www.equitymaster.com as a part of The Daily Reckoning <\/a>on Jan 9, 2015<\/span><\/span><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

Vivek Kaul Over the last few days I have had great fun watching business news channels. After the BSE Sensex crashed by 855 points or over 3% on January 6, 2015, all kinds of explanations have been offered for the fall by the business media in general and market analysts in particular. Greece will soon … <\/p>\n

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