Why Bad News Sells
In the age of social media and 24/7 news cycles, media outlets compete fiercely for our attention. Sensationalist headlines and exaggerated forecasts are the currency of the day, driving clicks, views, and engagement. As a result, stories of economic doom and gloom often dominate the headlines, overshadowing tales of financial success and prosperity.
Imagine picking up a newspaper or scrolling through your news feed - what catches your eye? More often than not, it is the dramatic headline - the tales of market crashes, economic downturns, and financial crises…. you click and read.
Media outlets rely on audience engagement and advertising revenue to survive. Bad news, sensationalism, partisan reporting, and catering to specific audiences can attract more readers, thereby increasing revenue.
What Makes Bad News So Captivating?
Part of the answer lies in human psychology. Our brains are wired to pay more attention to negative information than positive. It is a survival instinct that helped our ancestors avoid danger in a hostile environment. In today's context, this bias towards negativity manifests in our fascination with stories of economic turmoil and market volatility.
The Influence on Investor Behaviour
The prevalence of bad news can have a profound impact on investor behaviour. Studies have shown that individuals are more likely to make decisions based on fear than on rational analysis. This "negativity bias" can lead to panicked selling during market downturns and irrational decision-making driven by short-term emotions rather than long-term goals.
The Illusion of Insight
There is another reason why bad news sells: the illusion of insight. Pessimism often masquerades as wisdom, drawing us in with its air of caution and foresight. Those who predict market crashes and economic downturns are often perceived as intelligent and insightful. After all, who wouldn't want to heed the warnings of someone who appears to have a keen understanding of the risks lurking in the financial landscape?
Polarisation of Media
Beyond recognising the negative bias of media, we must also acknowledge the rise of media polarisation.
Social media has fundamentally changed how people consume news. With the ability to tailor content to individual preferences, algorithms reinforce existing negative beliefs by presenting users with information that aligns with their viewpoints. This creates echo chambers where individuals are exposed only to content that reinforces their existing biases, exacerbating polarisation.
Polarisation refers to the phenomenon where media outlets exhibit strong ideological biases, often aligning with specific political or social perspectives, forcing people to take sides on issues and eliminating the middle ground. In the UK, the Brexit vote was the instigator of this; vote yes or no on a cluster of wide-ranging issues, with no middle ground allowed.
Media outlets align themselves with specific political factions or social movements, further entrenching polarisation and divisions within society. Some segments of the population have become increasingly distrustful of mainstream media, perceiving it as biased or untrustworthy and this has led to the rise of alternative media sources, often with more extreme or ideologically driven narratives; BBC news versus GB News….
How All This Affects Your Wealth
The majority of the population tends to have a negative view of investing, and lack real understanding of financial markets because they primarily encounter sensationalised bad news.
When people hear about stock market crashes, economic downturns, and other negative events, they become fearful and anxious about investing their money. When this is enhanced by media polarisation, it can lead to impulsive decisions such as selling investments at the bottom of a market cycle or avoiding the market altogether.
They think financial markets are fundamentally riskier and scarier than they actually are, and this is one of the key reasons why most people don’t invest. They think the stock market is a casino, and equate investing with gambling. This is a huge failure of our education system and incredibly damaging to millions of people’s chances of becoming wealthy.
In the UK, less than 5% of the adult population has an ISA (Individual Savings Account) – one of the main tax-free investment accounts that a private individual in the UK might use to secure exposure to the stock market.
Don’t Believe Everything You Read.
There is an old adage; “if it’s in the news, it must be true”.
This has never been the case. All media outlets, be they newspapers, TV channels, or social media, harbor biases in reporting reflecting the beliefs of their writers or owners.
The adage once reflected a historical trust in traditional media outlets as reliable sources. In the past, newspapers and broadcast news were often the primary means through which people obtained information about current events, and they were typically seen as reliable sources due to editorial oversight, fact-checking processes, and professional journalism standards.
However, errors, biases, and misinformation can seep into any news coverage. As such, it is always prudent to critically assess media content, cross-checking with multiple sources and considering alternative perspectives.
Navigating the Noise
The big-picture point is that these factors cause many to avoid investing or to invest less effectively than they might otherwise. Understanding these concepts can help people be better investors, reduce stress levels, and enhance their positive view of the world overall.
So, how can investors navigate this landscape of negativity and maintain financial sanity?
Amidst the deluge of bad news, it's crucial to keep things in perspective. Remember that market fluctuations are a natural part of the economic cycle, and short-term turbulence does not necessarily dictate long-term trends.
Don't fall into the trap of exclusively consuming negative news. Seek out balanced perspectives that consider both the risks and opportunities in the market. Instead of getting swept away by sensationalist headlines, focus on the fundamentals of saving and investing.
Don’t believe everything you read - even better, tune out the noise, stay focused on your objectives, and trust in your ability to navigate inevitable market fluctuations.
INVESTING IS A LONG-TERM STRATEGY: The stock market can be volatile in the short term, and it is not uncommon for there to be periods of losses, slow growth, and even recessions. Panic selling at the whims of bad news is a quick way to miss out on the potential upside.
DIVERSIFICATION IS KEY: By investing in low cost global index funds, you can spread your risk and minimise losses during market downturns. By diversifying investments across different countries, sectors and asset classes, you can avoid becoming overly focused on a single trend or fad and reduce the risk in your portfolio.
YOU CAN’T TIME THE MARKET: The media would have you believe that if only you had been more informed, you would have been able to avoid the losses in your portfolio. But buying and selling investments based on short-term market fluctuations is a loser’s game. No one can consistently predict what the market will do - no matter how much bad news they watch. Even professional investors and fund managers, who have access to extensive research and analysis, struggle to consistently predict the moves of the market.
By understanding the dynamics of media influence, investors can navigate market volatility with confidence, making informed decisions to secure their financial futures.