Interactive Investor

Ken Fisher: share tips and surviving the misinformation age

30th June 2016 10:30

Ken Fisher from ii contributor

The internet's advent ushered in what many call "the information age". It's telling that no one calls it "the good information age". What it really ushered in was the "misinformation age".

What most media communicate as news today is largely opinion, varying in quality and reliability. Media have never been easier to access, yet useful information has never been harder to find.

Every newspaper's front page is full of opinion. Blogs can yield insightful expert opinions or utterly uneducated nonsense. "Advertorials" - marketing dressed as timely content - appear on mainstream sites.

Opinions infiltrate "objective" reporting. Data are cherry-picked to support a chosen narrative. Any given topic has scores of competing, contradictory articles on it. It's difficult for most readers to know what to believe.

While the preceding sentences apply in all walks of life, in investment markets, the consequences can be tangible and costly: good information can lead to sound investment decision-making. Bad information? You tell me.

This doesn't mean you should avoid or ignore all media. Reading it helps you know what's priced, so you don't have to worry about it. That's valuable! But to get there, you must evaluate information and separate fact from opinion.

Separating fact from opinion

Opinion is, of course, widely dispersed, well-known and seldom unique - therefore, it's already discounted into stock prices and of no real forward-looking consequence. It's mostly an obfuscating confusion point for most investors. Learning to identify it is key.

Traditional reporting relied on the five "w"s - who, what, where, when, why (and how, but it doesn't start with a "w"). They're always supposed to be covered in the first part of the first paragraph. How often do you see that today? They're largely dead now. Most front pages don't go there much. It's opinion, opinion and opinion, with little fact.

These days, most of the actual news in any report takes about a sentence. The rest - the adjectives, adverbs, metaphors, parables and hypotheses offered - are opinions. Fine for people to have, but in media, opinions can obscure facts and lead you to harmful conclusions.

Consider: In your typical "Stocks Do X on Such-and-Such", the only actual facts are usually the measures of movement. The accompanying explanations, attributions and quotes are unprovable. One person's guess. Maybe right! But maybe not.

Some opinions are unique and insightful, but you must evaluate them. Is supporting evidence presented? If they use data, do they source it? Can you verify it independently? Do charts have a full description of the data used? Is there weird scaling or other adaptations? Questioning illuminates misinformation.

Fact-checking is a dead art. It's up to you to verify. Mistakes happen. For instance, some articles mix and match currencies when quoting foreign returns. You'll get the FTSE 100 in pounds, S&P 500 in dollars, Germany's DAX in euro, Japan's Nikkei 225 in yen, and so on.

Unless you're investing in each of these currencies, that's a useless comparison. If you're investing in dollars or pounds, those aren't your returns. Sounds harmless? Consider the implications: Earlier this year, headlines hyped "bear markets" in several countries, panicking investors globally. But most of those "bears" existed in local currency only.

For Brits investing globally in sterling, the volatility was milder. Same for Americans. Buying the media's narrative lock stock and barrel invited emotional ill-timed selling.

Charts are easy to manipulate

Check charts, too. They're also easy to manipulate. Anyone can fiddle with Excel and make two unrelated series look alike on a graph. Just plot each series on a separate Y-axis-one on the left, one on the right - and manipulate the scale until they tell the story you want.

In early 2014, a chart claiming recent returns looked just like 1928-1929 went viral. The implication? A huge crash coming, another depression! But it was data deception. The chart had two Y-axes - one for the present, one for the 1920s - with mismatched scales.

It stretched the 2012-2014 series vertically, making it look just like 1928-1929. But compared properly - indexed to a common starting point and using the same scale - they looked nothing alike. There was nothing there.

A better investor

Evaluating media takes time, but it makes you a better investor. The clearer you see the news, the clearer you'll see markets.

In the meantime, here's my opinion on two great stocks to own as this bull market keeps running.

Medtronic is global healthcare's top dog, the top tech firm in non-drug medical devices and therapies for dozens of chronic diseases. It's a natural moderate growth firm - priced well at 16 times my April 2017 earnings estimate, with a 1.9% dividend yield. Critics bemoan its one-of-the-last-tax-inversions reality, but the real reality is that it's a fine Minnesota-based firm.

LVMH Moet Hennessy rings many of my bells: loads of leading luxury brands, superfat gross margins, moderate growth and reasonable valuations. Luxury almost always accelerates as expansions mature - and should now. It sells at one times annual revenue, 17 times my 2016 earnings estimate, with a 2.4% dividend.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.