How to Read Financial News: Tips from Portfolio Managers
The late Robert J. Martorana, CFA, is the author of the How to Read Financial News series. You can hear him interviewed in the Guiding Assets podcast “How to Read Financial News and Set Aside Our Biases.”
A portfolio manager once told me that half the research on my desk was a complete waste of time. “Figure out which half is garbage and you’ve just doubled your productivity,” he advised.
His point was that most research is backward-looking rather than predictive. Reading obscure financial information may look and feel like productive work, but most of this content has little chance of leading to better results.
Nevertheless, many of us plow ahead, reading news and research until our eyes turn red. After all, reading is easier than critical thinking, and it may impress people if you are up to date on a wide range of financial subjects.
Rather than reading less, portfolio managers must learn to rapidly detect what is nonsense and move on. It’s a necessary skill when confronted with the hype and sensationalism now masquerading as news: press releases that spin the facts, earnings reports that ignore basic arithmetic, and management explanations that test the boundaries of probability.
It is worse now that investment blogs have embraced the golden rule of tabloid journalism: simplify, then exaggerate. Pseudo news and pseudo analysis clutters the web, making it harder to stay well informed.
Fear sells, fact-checking is passé, misinformation is rampant, and track records of past predictions are irrelevant, according to the late Jeff Miller, who blogged at Dash of Insight. He wrote extensively about how superficial journalism is shortchanging readers of financial news and recommended focusing squarely on the future since you do not get paid for yesterday’s news.
Unfortunately, you’re pretty much on your own when trying to learn to read financial news effectively. The web is full of articles discussing how to detect political bias, while the professional investment literature discusses how to dissect financial statements. How to skillfully read financial news gets little attention.
Three Questions to Ask
- Is the article based on data or opinion?
- Is it descriptive of past conditions or predictive of the future?
- Does the article have a testable hypothesis?
These are tedious questions to answer, so I asked five of my colleagues for insight on how they separate the signal from the noise.
- Understand the Consensus: You need to grasp the conventional wisdom in order to bet against it. This becomes easier once you’ve done the groundwork on a specific investment thesis. After you catch up on the relevant news, you might want to jot it down. Brian Gilmartin, CFA, founder of Trinity Asset Management Inc., does this diligently on Fundamentalis, where he tracks corporate earnings: “I publish for myself — it forces me to organize my thoughts.”
- Seek Disagreement: You need to understand the other side of the trade. This means reading opinions that contrast with yours in order to avoid confirmation bias.
- Question the Narrative: Reporters are under intense deadline pressure and often frame issues in a way that is confusing or distorted. As Marc Gerstein, of Chaikin Analytics, who blogs at Forbes, said, “Reading too much financial news is counterproductive. The narratives are often incomplete, misleading, or flat out wrong.”
- Respect the Data: Charts, tables, and numbers are good places to start for corporate results and economic data. Always check the primary source when possible. “My models are based on data, so I prefer charts to commentary,” Gerstein noted.
- Avoid Partisan Interpretation: Turn off your political bias when you read and interpret the news, and be wary of commentators who have political agendas.
- Develop Your Own Framework: Before you read the news, you must have your own framework in place for decision-making. Otherwise, you’ll be unduly influenced by what you read. As Ed Stavetski, founder of PCM Partners LLC, put it, “You must have an independent view of the markets or the media will force a view upon you.”
Tips for White Papers
When reading long reports and academic research, reviewing multiple articles on the same topic is better than random reading. To do this, sort content by topic, save papers in folders, schedule weekly reading time when possible, and read in batches.
Dealing with Politics
Effective interpretation must be nonpartisan but does not ignore politics. In fact, some portfolio managers use political interpretation as an edge. Gerstein believes that politics can be a leading indicator because it reflects the mood of the country. “The political eventually determines the economic. It takes a long time to play out, but it eventually works. Listen for the key narratives in the market,” he said.
Stavetski is quick to point out how the media is slow to recognize public anger. It is now conventional wisdom to say that the presidential campaigns of Donald Trump and Senator Bernie Sanders revealed deep discord in the United States, but Stavetski pointed this out in 2015. He likes to read unconventional websites because they “find the potholes first.” These sources may have agendas, but that doesn’t mean they’re wrong. It just means you have to dig through a lot of garbage to find a worthwhile warning sign. This process can serve as a kind of “torpedo alert” for news that is under the radar of the mainstream media.
I like to look for stories that defy the political leanings of a news source. For example, a key turning point was when the Wall Street Journal started reporting on income inequality. This shift in news coverage was followed by broad public attention on the minimum wage and later by margin pressure at certain retailers and restaurants.
What Tools Do I Use?
The list below shows some of my favorite forums but is by no means comprehensive. For more detail, please see the slide deck at the end of this article.
- Abnormal Returns: Consistently excellent links.
- Briefing.com: Stock and bond content for portfolio managers.
- RealClearMarkets: Many links, small space; a Craigslist for financial news.
- The Reformed Broker: Snappy headlines and bold opinions from Josh Brown.
- Retirement Researcher: Wade Pfau, CFA, produces work that is academically rigorous.
- Michael Kitces: Practical and prolific, and always a blue shirt.
- David M. Blanchett, CFA: More credentials than anyone I know; publishes faster than I can read.
- FactSet Earnings Insight: Weekly PDFs with 15 or more charts on aggregate revisions and estimates for the S&P 500. Simple, authoritative, and free.
- Fundamentalis: Gilmartin’s thoughtful, opinionated analysis cuts through the numbers quickly and accurately.
- FRED Dashboard: The US Federal Reserve Economic Dashboard (FRED) allows you to pick your favorite charts and save them in a dashboard. You can then download everything into PowerPoint with the click of a button for client presentations.
Capital Market Assumptions (CMAs)
- AQR: “2022 Capital Market Assumptions for Major Asset Classes“: Deep theory and great writing from Cliff Asness.
- JP Morgan: “Long-Term Capital Market Assumptions 2022“: A comprehensive chart pack.
- YCharts: Use the correlation tool to see what’s driving the market.
- Portfolio Visualizer: Perform factor analysis of exchange-traded funds (ETFs) and mutual funds to evaluate beta exposures.
- feedly: A feed reader to organize your blog content.
- Advisor Perspectives: A mix of practical and academically rigorous ideas. Editor Robert Huebscher maintains high standards.
For more insights, the presentation, “Six PMs Describe How They Read the News,” is available via Scribd.
Robert J. Martorana, CFA, presented a webinar, “How to Read Financial News More Effectively: Tips from Six Investors,” on 7 September 2016.
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44 thoughts on “How to Read Financial News: Tips from Portfolio Managers”
Great stuff, very practical. I appreciate the insight.
Thanks–I hope you liked the slide deck. There’s a lot more there that we’ll discuss in the webinar.
Thanks for the insight. I always find myself at odds between news /blogs and Press releases published by companies themselves- I often feel that both are rather superficial sources of information
Companies have a lot of leeway in news releases, especially when it comes to non-GAAP accounting. As for news and blogs, I look for writers that link back to the original data, and who provide history and context. There ARE some reliable sources out there, and I prefer to read those deeply (rather than read widely).
The danger with reading a lot of news is that it fills your head with narratives that simply are not true. It’s like walking through a carpentry shop: You’re going to get covered in sawdust, so I try to limit my exposure.
Brilliant article, Amazing and superb! So very true also!
I give kudos to my peers, industry veterans who each have 30+ years in the business.
You blast “blogs” then cite a blog as you key source for this article!
“It is worse now that investment blogs have embraced the golden rule of tabloid journalism: simplify, then exaggerate. Pseudo news and pseudo analysis clutters the web, making it harder to stay well informed.
“Fear sells, fact-checking is passé, misinformation is rampant, and track records of past predictions are irrelevant, according to Jeff Miller, president of NewArc Investments, who blogs at Dash of Insight.”
Robert, I fear you have fallen into the same trap you advise us to avoid.
“FEAR SELLS! ” (Contrarian!)
warmest regards everyone!
Thanks for pointing that out–I regret any confusion.
I should have said “…MANY blogs have embraced the golden rule of tabloid journalism…” Likewise, many newspapers and journalists have embraced tabloid standards, so we have to read carefully.
BTW, I’m a fan of your work at RIAbiz.
The article is amazing. How can I get updates of any of your published works as they are released.
Please send me an email: [email protected].
I want to have up date to your published works this is very help .
Helpful article for beginners 🙂 Greta stuff !
You know its a fact as I read in a book on Warren Buffet that he still makes notes, (as I recall correctly) and has that long term “fundamentalist” view about “excellent long term stock returns” versus “garbage stocks”….I guess the Omaha Oracle was “one of first practitioners” (not the first) to read the financial news and derive sensible conclusions from it! Any comments, gentlemen.
and Oh yes Rob…..Can I also use the same email address given above (@RightBlendInvesting) to get updates on your published works as they are released
Thanks & Regards
Yes, that email is fine. I’ll send you a list of my links and publications.
I also recommend the lessons about behavioral finance from Amos Tyversky and Daniel Kahneman. For example, three key biases are anchoring, representativeness, and availability (what you have is all there is). “Thinking Fast and Slow” is an excellent introduction.
Reading is always beneficial if a person could take the good from it or it proves to be a source of knowledge for them. Reading useful information can help in making better strategies. The tips given here for portfolio manager are really helpful thanks for sharing.
Great. I agree with everything, especially with the need to have a framework from which to approach readings.
I actually wrote an article on how to become a financial journalist. Lesson one is an example on the appropriate vocabulary to use when commenting on the market. If I could download it here I would, but unfortunately not possible.
I’ve watched a couple of your interviews with CFA and they were really great, very helpful for a young analyst like myself.
In this blog you wrote the last point in best practices, “Develop your own framework”. How would you recommend one to go about in developing a framework that is as close to reality as possible instead of loop siding with the hype?
Thanks & regards,
Thanks for your comment.
I wrote an entire series of articles about how to develop your own framework.
Here is the link: https://blogs.cfainstitute.org/investor/tag/how-to-read-financial-news/
The short answer is that you have to:
1) Figure out WHY you are reading financial news, research, data, etc. You could be reading for general knowledge, for entertainment, to communicate with clients, to generate alpha, to manage risk, to improve your investment decision-making, or a number of other reasons.
2) Figure out how much TIME you can allocate towards reading. There’s no point in developing a process that you cannot follow. The hard part in reading is maintenance, consistently reading the same material, the same way, in a timely manner. Very easy to get side-tracked.
3) Read ORIGINAL SOURCES FIRST. Always go to the original data for prices, earnings, economic indicators, etc. It is easy to rely on other people to interpret the data FOR you, but you really need to do a deep dive at least once before you can draw any conclusions. Otherwise, you spend your life going “a mile wide and one inch deep.”
4) Form your OWN OPINION. You’ll need to express three things about any trade/investment: the timing, magnitude, and direction. For example, I am now an inflation hawk, and I believe that inflation will continue to exceed expectations by 2% or more in 2022. I am invested accordingly.
5) Stress-test your opinion. This will happen naturally, if you are invested, since your position will either succeed or fail. The data will come in and the price will change. You can also stress-test your opinion by publishing on social media. This attracts public scrutiny and criticism. (Or you can just share your ideas inside your firm, or with a select group of professionals. It depends on your job.)
I hope this helps.
It’s great that you talked about financial reading and how to find reliable news. Recently, my dad mentioned he’d like to learn about investing and financial strategies. My dad’s new to the financial world, so I think this article could help him understand it better. Thanks for the advice on how to read economic articles.
Thanks Eli. That’s kind of you to say.
I hope your dad goes to reliable sources, such as the Wall Street Journal and the Financial Times. I recommend finding a liberal source and a conservative source of news since the coverage is more complete (you don’t want to miss any trends) and you can decide for yourself which source is more accurate for a given topic.
It makes sense, and it sounds very helpful.
Prashant, Eli, Vijay, Alexander, and Ginny:
Thank you for your kind words.
Pardon my delayed response since I’ve been focused on my cancer treatment. If you liked this article, the CFA Institute published my entire series of here: