Ban daily stock market reports

Stocks are down! Or up! Or something. In any case, it’s all over the news. When news organizations cover stocks in this manner, it’s known as “market reporting”, and very, very little good ever comes from market reporting.

Sometimes, it’s even illegal: Wang Xiaolu, a reporter for Caijing magazine, a top Chinese financial publication, came out with a public confession this week.

“I acquired the news from private conversations, which is an abnormal way, and added my personal judgment and subjective views to finish this story,” said Mr Wang in a confession aired on China Central Television. “I shouldn’t have released a report with a major negative impact on the market at such a sensitive time. I shouldn’t do that just to catch attention which has caused the country and its investors such a big loss. I regret . . . [it and am] willing to confess my crime.”

This crime, and arrest, reflects a big difference between the Chinese and American stock markets. Chinese markets are young, which means they’re a bit like watching five-year-olds play soccer: everybody runs in the same direction at the same time. In that kind of context, bans on market reporting are pretty sensible: the news media acts as a accelerant and amplifier for any kind of volatility, stoking greed and FOMO on the way up, as well as fear and panic on the way down. (Let’s just hope this rule remains in place when stocks are soaring, and is not only enforced when they’re falling.)

In America, by contrast, the many, many problems with stock-market reporting have less to do with individual investors getting panicked and selling their stocks. That kind of behavior actually happens much less than it used to, partly because individual investors are a much smaller proportion of the market, and partly because the “don’t panic, you’re invested for the long term” message has finally gotten through to a large proportion of the investor base.

The problem, rather, is that the message has not gotten through to the overwhelming majority of Americans – people who don’t individually invest in the stock market. Most Americans have no stock market savings, either because they don’t have any savings, or because they don’t invest their savings in stocks. When these people see reporters breathlessly talking about markets going up and markets going down, they reasonably enough conclude that this news is important. The result is that a lot of Americans end up feeling stupid, because they don’t really understand what all the reports mean, and also because the reports themselves have almost zero useful or important information in them.

How do normal people, rather than markets people, interpret all the noise about the stock market? To answer that question, you need only look at the cover of this week’s New Yorker.

Dutch cartoonist Joost Swarte, who drew this cover, is quoted as saying that “the stock market is all about fear and anxiety, best shown in how a mouse reacts to a cat” – which on the one hand is only half true (there’s a lot of greed in there as well), but on the other hand is just as insightful as anything you’re likely to hear on CNBC.

So this week’s New Yorker cover really does capture the zeitgeist: it shows that people are paying attention to the stock market, for no particular reason other than that people are paying attention to the stock market. (If they weren’t, there’s no way this cartoon, complete with its incomprehensible y-axis, would ever be a cover.)

Is there a good way to cover markets? Jim Fallows, linking to my On The Media rant, (thanks, Jim!) talks about “the utter stupidity of reporting minute-by-minute fluctuations in the stock market”, but in fact there are reasonably frequent cases where “this is what the stock market did over the past few minutes” reporting can convey useful and informative information. If a big piece of news happens – the Fed raises interest rates, say, or a big vote fails in Congress – then the way that markets react in the minutes following the news can tell you something about what the news really means. (It’s called the wisdom of crowds.) On the other hand, if a big move happens and there’s no obvious news event which precipitated it, then it’s idiotic to start hunting for some spurious reason for why the stock market is doing what it’s doing. Most market moves are random, much as the news media hates to admit it.

At the other end of the spectrum, big moves over the course of months or years can also be informative. What has happened in the past few years to Tesla stock, or Netflix? Looking at those stories in the form of stock charts can be useful, just as the bigger story about how stocks have performed since the financial crisis is also an interesting one.

By far the least informative form of stock-market reporting – the one which should never be done – is not the minute-to-minute stuff, or the long-term stuff, but rather the day-over-day stuff.

What did the Dow do today? It’s random, it doesn’t matter. If any newscast tells you what the Dow did today, they’re implicitly telling you that the Dow’s movement today is important. Which, it isn’t. If they tell you what the Dow did today every day, then they’re implicitly telling you that daily movements in the Dow are really important, important enough to get reported day in and day out. Which is insane. No one believes that.

So while stock-market reporting is being banned outright in China, let’s not go that far in the USA. Let’s just ban daily stock-market reporting. That would be a pretty good start.