Investor Mindset, Episode 11: Separating Fact from Fiction

Our downloadable audio series is available for paid newsletter subscribers! Click here to download Episode 11.

The Wall Street Journal does it. Fox Business does it. Virtually every crypto news site does it.

It’s a practice so common that no one even questions it anymore. There’s only one problem: it’s also completely wrong.

I am talking about the practice of speculative storytelling.

I’m not talking about “fake news” — whatever that is — I’m talking about the widespread practice of making up a story to explain the daily market behavior.

This is not an occasional thing; it literally happens every day. Here are some recent examples.

- Stocks tumble as disappointing earnings fan investor fears (Reuters)

- Oil Markets Run Hot in Asia as Omicron Fades Into Background (Bloomberg)

- Stocks Waver as Investors Cut Risk (Wall Street Journal)

It’s even worse when crypto is involved:

- Bitcoin Nears $41K as Bond Yields Rise (Coindesk)

- Cryptos Are Rising, But a ‘Crypto Winter’ May Be Coming (Barron’s)

- Bitcoin Sags in 2022 Under Weight of Stock Selloff and Fed Policy (Wall Street Journal)

Speculative storytelling is not only factually wrong, but also misleading for investors.

I will explain why otherwise intelligent journalists do this, as well how to exercise discernment — another mental superpower — as to whether a story is worth noticing.

First, I’ll give you some tips on how to spot speculative storytelling in the wild.

Protip: Beware of any financial headline with the word “as.” (Courtesy CNN)

Markets are Messy

On any given day, there are millions of people making billions of decisions to buy or sell. There’s automated software making trades. There’s company announcements, policy decisions, and general zeitgeist.

But that’s not a story. Journalists can’t say, “Lots of stuff happened today, and the Dow ended down 30 points.”

So the lazy way is to make two unrelated things look like they caused each other:

(Courtesy Fox Business)

Technically, they’re not saying the two things are related, but it is implied. And this is misleading for investors, who accept this at face value.

It’s misleading, because it implies that everything in the stock market (and the block market) is reducible to a formula: “X caused Y.”

Ask yourself: where did this story happen? Did all the bitcoin investors get together and discuss the Fed report on digital currencies, then decide they were going to trade below $40,000? Was there a conference call? Why wasn’t I invited?

Of course, none of this happened. It is a speculative story.

These are well-meaning journalists who have to report on something, so they imply a story between two random events. They might as well say:

Both things may be factually true, but one has nothing to do with the other.

There are so many factors that go into any given day’s market movements (so to speak) that it’s impossible to coax it out.

Let me be clear that journalists play a critical role in reporting real stories: product announcements, company or crypto news, or market trends (backed up with good data).

These are the high-value stories we feature in our newsletter.

Journalists typically don’t get paid a lot, and their work is a public service. But sometimes, on a slow news day, you’ve got a deadline to fill. And heaven help the hapless investor who makes a decision to buy or sell bitcoin based on lazy headlines.

It would be better if more news organizations wrote stories like this actual news headline from CNN:

Not much information, but you gotta admire Paul La Monica’s honesty.

The Superpower of Discernment

There’s a state of mind that can help us separate out the worthwhile news. It’s called discernment, and it’s another investing superpower.

Discernment is like a filter you put on your mind. The filter asks questions before it allows the thought to seep into your brain.

So when you see these overly simplistic headlines about why bitcoin went down, or why Dogecoin went up, ask yourself: did X really cause Y? Why? How? (If it’s really that simple, then next time X happens, you can just plan for Y.)

Remember our simple investing philosophy:

- Buy and hold bitcoin

- Plus a small number of high-quality digital assets

- For the long term (5+ years)

If you follow this plan — which so far has richly rewarded our patient investors — then you don’t need to worry about day-to-day market movements. Long term investing is difficult to see in the short term.

Figuring out the difference takes discernment, or the use of a “mind filter” to ask questions like:

- What is the quality of this news organization?

- Is there data to back up this claim? Can I fact-check it?

- Does this reporter bring a bias — political, financial, or otherwise?

- In the big scheme of things, does this story ultimately matter?

- (See FactCheck.org for more good tips.)

We’ve been releasing a series of “Investor Mindset” audio files (think of them like guided meditations for investors). Our latest episode will help you build the quality of discernment, to help you separate financial fact from fiction. Download Episode 11 here.

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