Market crash: Headlining and tweeting our way to volatility

20th September 2011

Data from its annual Autumn Confidence Survey shows 48% of working age adults are not confident about pensions compared with a confident 42%, the first dip into negative confidence in the index's four-year history.

NAPF believes the sharp drop reflects low consumer confidence, negative perceptions about a pension's inflexibility and costs, and recent heavy stock market falls.

But while all this is true, little is said about the headline writers' effect on perception.

Whether on the telly, online or in print, writers know that a "smash-bash-crash" headline grabs readers. We love bad news, negative celeb gossip  makes us feel better US website Gawker is a prime example.

The perception is crash. But do the figures bear this out?

Over the past five trading days, the market has been up on three days, going nowhere on the fourth and only down on one day. True, the fall – on Monday – was sharper than the rises on the days when buyers outgunned sellers, but overall, the market gained some 150 points over the week. But what remains in the mind are the "markets rocked" and "markets crash" headlines from Monday.

The other days are not newsworthy. Think back to other market cycles and other asset classes – the media's interest in doom and gloom far outweighs positive possibilities. As the last week has shown, the "up days" are boring while the down day is exciting. Bad news sells.

This is all short term noise. Long term investors such as pension fund holders should be asking whether their asset mix is suitable for the five, 10, 20 or more years before retirement.  Unless you are an obsessive day trader – or work for an investment bank – these intra-day, intra-week or intra-month moves won't make much difference.

But the noise is hard to avoid – it's everywhere across the always increasing numbers of media outlets, turning us into news junkies.

Take a look at the blog from Joe Weisenthal, deputy editor of US money magazine Business Insider.  He's a self-admitted certified news junkie. Here's a small extract -the whole thing can been seen here.

"I'm a real early bird. I usually get out of bed by around 4 o'clock in the morning, and the first thing I do is fire up Tweet Deck to see what's happening on Twitter. Half the time the first thing I tweet is, "What did I miss?," and people–often traders in Europe–will send me articles about what happened while I was sleeping. I also usually try to get a quick look at the world financial markets by going to Bloomberg.

It kills me how much humans have to sleep. It seems like such a waste of life but I don't think there's any way to avoid it."

And so he goes on through his day until:

"Usually at night, before I go to sleep, I'll check some international sites like the Sydney Morning Herald, China Daily, and Nikkei.com to see if any interesting headlines are popping up for the next day."

It's probably irony. But if it is not, there's the Big Question. Is he richer or happier than the buy and hold investor who gets on with life – like watches sport, listens to music, reads novels, or gawks at celebs?  

A lot of the noise is self-reinforcing. It comes from the twittersphere so buy/sell decisions are made not on old-fashioned fundamentals such as will this company make more profits next year but on the weight of tweets. Many of these tweets are retweets  or influenced by other tweets often producing what can be a circularity of ignorance masquerading as knowledge.  And of course, if it does affect markets, then it becomes knowledge.

US investment adviser and blogger Joshua Brown says :

 "At its core, Twitter is a news and opinion delivery mechanism. Other than the speed, it is no different than newspapers, radio, television or Nathan Meyer Rothschild's runners and carrier pigeons who raced from the field at Waterloo to let the banker know of Napoleon's defeat before the rest of the bond market. 

"As with other forms of media, speed is not the most important variable in information delivery.  You have to know who to listen to and who to ignore, what's important and what's trivial or already priced in. Otherwise, the internet is just another noise machine." 

Brown quotes Dan Ariely, a respected academic and author of The Upside of Irrationality saying: "The entire question of how emotion will change people's behaviour is pretty much outside the standard model of economics.

"Money generates more emotional responses in people than perhaps any other subject, any attempt to suppress emotional responses in markets is folly, obviously."

Yes, there are bad economic times around. Yes, markets are more volatile than a decade or two ago. But for investors with a long time horizon, the right asset class will count for a lot more than all the noisy tweets.

More from Mindful Money:

Tweeting moods key to stock market forecasting

Social Finance: The New Influentials

Social Media: In Forums We Trust

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