Words Matter...Except When they Don't
Things have gotten interesting in the markets. There is no escaping that fact. Volatility has been the story of the year so far. Times like these inevitably lead to a serious increase in shameless attempts to encourage panic.
Who would do such a thing? This might have been a difficult question to answer in other times, but we are living in the era of the attention economy. Your eyeballs are the currency of the land, and advertisers are willing to pay some serious sums to those who can keep those eyeballs looking at their commercial messages. It is almost too easy to see how it just makes sense for the “influencers” on TV, radio, and the internet to keep your blood pressure as high as humanly possible. Fear is a great tactic. After all, as every local newscaster knows, “If it bleeds, it leads.”
In the sphere of financial news, it is important to pay attention to the vocabulary of the messenger. I cringe every time I see a headline like:
This has to be among the most worthless phrases that a person can put to print. Let’s dissect it to find out why. “Dow” refers to the Dow Jones Industrial Average (DJIA). The Dow is a stock market index of 30 prominent companies listed on stock exchanges in the United States. If we are only counting the United States, there are over 5,000 publicly traded companies. Understanding this, I wonder what value could possibly lie in following the day-to-day movements of only 30 of them? Add to this the fact that these 30 companies are similar in so many ways that one could argue that the collection is not exactly diversified.
You might still be thinking that tracking any list of major American companies for more than 130 years must be good for something. You would be incorrect since the DJIA started with only 12 stocks, and today, none of them are still in the index. This would be much like judging the talent of the winner of the Tour de France, but only if they switched bicycles and drivers several times throughout the course of the race. The person you may have been cheering for at the start had absolutely nothing meaningful to do with the person who crossed the finish line first.
OK, having beaten up on the DJIA, you might still be wondering why else this headline is the opposite of useful. Do you know how much 100 Dow “points” are? I don’t know this off the top of my head, and I have worked in investments every day for the last 20 years! Five hundred points sounds like a lot, though, doesn’t it? On the day this headline was published, the DJIA closed the day around 1.1% lower. I know what one percent means, and I bet you do, too. So why wouldn’t someone write “Dow drops around 1 percent Tuesday” as a headline? While it may be more useful information, it doesn’t exactly grab your attention like “nearly 500 points,” does it? This is the attention economy, after all.
I am not pretending that the stock market doesn’t go up and down. In fact, as reluctant as I am to use the word guarantee, I am willing to look every single investor in the eye and tell them with extreme confidence that stocks will go up and down. The financial media rarely talk about this, though; they prefer to talk about markets “roaring” or “plunging.” After all, a market plunging by 500 points seems quite a bit more exciting than one going down around one percent, doesn’t it?
A quick scroll through my online newsfeed for the word “stocks” revealed the following verbs (as well as the number of times they appeared):
Jump(s) (2), Tumble (3), Dump, Slump (2), Bounce (2), Sink, Surge, Soar(s) (4), Plunge, Whipsaw, Plummets, Tank
Keep in mind that I only read the headlines, and this wasn’t even 24 hours' worth of them! I took a few creative writing classes, so I appreciate the value of a powerful verb. There is a time and place for such excitement, though, and the words we choose matter.
There is a very good chance that you are not invested in the Dow Jones Industrial Average, although you may own a few of the component stocks. If you are worried about your investment performance, I will give you the same advice I have been giving my own mother for the past couple of decades. Turn off the TV. Call your advisor. If they talk about how many points the Dow “plunged” or “soared”, consider looking for someone else to call.