Danger of Financial News to Investors: Lower Quality, Lower Value

To be clear, we believe keeping up and understanding financial news, economic data, and business news are an important part of being a successful investor and trader. That’s why these things, as a part of fundamental analysis, are such a big part of our stock market guides.

But as with all tools and resources investors like you and me use for our investment decisions, we have to understand it’s strengths and weaknesses. When to use something, and when not to. We cover that in our Financial News & Information Review Guide, but here I’m going to point out a specific example to help you understand WHY the stock news, business news, economic news, etc you read everyday might not be as valuable as you think. Which means it’ll be dangerous to base investment decisions on this low-value information. On his blog earlier this week, SPYder Crusher wrote a fantastic post about financial news, the amount of junk and inconsistencies, and it’s correlation to stock prices. SPYder Crusher showed very well how using financial news incorrectly can greatly hurt a trader’s chances of success and even their self confidence and longevity.

First, take a look at the infographic below. It shows how Demand Media, one of the top online content producers in terms of number and and revenues. While Demand Media isn’t focused on financial news, by looking for these things anyone can easily identify many low-value financial news manufactured through similar “content mill” processes. (Hint: most of the stock news headlines on Yahoo! Finance’s stock quotes look like “content mill” products)

Demand Media Breaking the Bank
[Source: OnlineMBA.com]

This is the ideal blueprint most online businesses, especially content producers depending on ads for income. Notice the low quality of their content producers (freelancers, not experts) – because their goal is for volume of stuff (quoted as a goal of 1 million articles, videos, etc per month!). You can’t use experts for this amount of content. First, numerically there are very few “experts” on any field, including finance, because it takes years of experience to become an expert. Second, because experts have a reputation to keep and take their time to do quality research, they can’t produce as many articles.

With this “content mill” machine, Demand Media gets twice as many views as New York Times! And makes the same amount of money as the NYT, which has 50+ years of experience, reputation, credibility.

Through the various internet marketing, media, video, SEO etc consulting we do, we know this is what goes on behind the scenes:

  1. Like the infographics says, “Spam” Google, Yahoo, and other search engine results. So when you, me, or any other investor are searching for information, these “content mill produced” news will be the only things we see
  2. This drives traffic to the news, media, blog, and whatever content producing site so they can sell Ads
  3. And why do they want to sell ads? So they can keep running their business, grow, etc. The entrepreneurial spirit

This is a quote from Columbia Journalism Review summing this up:

Journalists constantly feel the push and pull of these numbers. “What am I today?” asks Jeff Cohen, editor of the Houston Chronicle. “I’m an aggregator of eyeballs.… We’re doing around 79 million page views a month—almost a billion in a year.” Yet for all that web traffic, his newsroom’s 206 employees are about half the number employed in 2006.

In summary, the news you read are driven by 2 things, neither of which is the quality or usefulness (from an investing perspective):

  1. Ads. Who pays the content producer’s bill & salary has GREAT influence over what content (news, information, media) is produced…and that’s what’s put in front of your face
  2. Search Engines like Google. The better a content producer is at tricking Google to show their news at the top of your search results, the more people will go to their site. The strategies for doing this falls under the techniques of SEO (i.e. Search Engine Optimization – website operating “Best practices”). So what sites and news articles will you see first with SEO? Depends on keywords and topics that people search for (NOT what is important news). Also depends on links, optimal website code, server speed.

So you see, we’re not saying there’s no useful news, but those who spend money on “Content mills” producing low-value content is what you’re likely to see. Meanwhile, true stock market experts, top traders, top analysts spend money on high quality research and analysis. But these experts don’t have the skills or resources to compete with the content mills to be front and center on Google, and thus aren’t likely to be seen by investors who need them.

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