Practical analysis for investment professionals
06 April 2020

How to Read Financial News: Coronavirus, Confirmation Bias, and Political Bias

  • Now more than ever we need to read the news with a clear eye about our emotions and biases, especially our tendency towards confirmation bias and political bias.
  • Coronavirus affects people across the globe and across the dinner table, and our personal experiences can affect our judgment for better or for worse, depending on our process for reading, interpretation, and decision-making.
  • Here I explain how a framework for reading financial news can help us maintain our objectivity during a crisis.

As I write this, my wife, Janet, is working in a hospital where she treats patients with COVID-19. Janet is a nurse practitioner in the intensive care unit (ICU), and she is the key health care provider from 7:00 pm to 7:00 am.

She has worked 84 hours during the last eight nights.

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Many of the patients in the ICU are on ventilators. That means that Janet or another provider must insert a breathing tube, which is one of the most dangerous tasks a health care provider can perform when a patient has COVID-19.

Since Janet is exposed to the coronavirus every time she goes to work, she takes extra precautions everywhere, and she wears masks at home when she is with Joshua, our two-year-old son. Joshua misses his mommy, because she cannot kiss him and hug him the way she used to.

Janet, Joshua, and I live under self-imposed quarantine with my older son, Benjamin. We are keeping the baby home from daycare, and Ben helps me watch Joshua and keep him quiet while Janet sleeps behind blackout curtains that block the sun. We run a fan to help mask the noises in the house, and we have sound machines that generate white noise inside and outside of the bedroom. This is what you do when your wife works night shifts during a pandemic.

Meanwhile, I run a business managing money for clients with retirement accounts. I own a registered investment advisor (RIA) in New Jersey, and my clients are worried about their wealth and their health at a time when the coronavirus has turned the world upside down.

Coronavirus has also turned my world upside down, as I balance concerns about my wife and family with the needs of my clients and my own health. (I have three joint replacements and chronic pain from an autoimmune disease.) Nevertheless, I try to stay objective, setting aside my own emotions and biases.

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Reading the News

I read the news like everyone else, and I aim for impartiality in my role as an adviser and portfolio manager. It is not easy these days.

Reading the news has become more challenging as digital media have swept the landscape. I have found myself reading more and learning less. So in 2016, I began to ask my peers about how they read the news, and I have written a ridiculously long series of articles for Enterprising Investor: How to Read Financial News to improve my own investment process and to help reduce my biases when I read news and research.

Confirmation Bias

I have had a lot of experience with confirmation bias in my 35 years as an investment professional. Confirmation bias means that we favor information that confirms what we already believe. For example, if we own a stock, we tend to believe positive news about the stock, the company, the economy, and the stock market. We tend to ignore information that contradicts what we believe because we don’t want to be wrong or to look stupid in front of clients or colleagues.

Simply put, pride makes us blind. Pride puts blinders on our eyes and earplugs in our ears, so we only perceive what we want to perceive. This includes you and me because we all have pride. No one is exempt.

Pride is the root of confirmation bias, which makes it difficult for us to see and hear the news objectively. We tend to sort and filter the news, instead of just receiving the facts as they are. So I developed a framework that attempts to minimize our biases.

The framework appears in “How to Read Financial News Redux: The Complete Series.” The following graphic summarizes the process:


A Framework for Reading Financial News

A Framework for Reading Financial News

Framing of Stories and Political Bias

The second step of the process — Analyze the Frequency and Framing of Stories — will be my focus for the remainder of this article. When I wrote about how to understand consensus, I discussed how events are shaped by the media. Market prices rise and fall and the media create a narrative that may or may not be true and is always limited and incomplete. The media have the power to describe events or “frame” the price action in capital markets, and this affects us as readers.

How an event is framed affects the news and how it is perceived. The media can spin a story in countless ways that influence how we interpret it. I read financial news to help understand the world as it is, not how it should be. I identify the political biases of the media and act accordingly, and I do my best to remain nonpartisan.

As investment professionals, we all use the media to give us news about the world around us. And like it or not, politics shapes how the media deliver information. Most media sources have a worldview that leans either conservative or liberal. In the United States, the Republican Party tends to be conservative and the Democratic Party liberal, so that’s the starting point. (Please see the footnotes for more information about why politics tends to be two-dimensional, and why it is usually a divide between the left and the right.)

When I read the news, I first try to understand consensus, and when I first observe the events around me, I like to begin with facts and data. Yet even as I read, I realize that many sources of information have a conservative or liberal view of the world.

Political bias is widespread, so we need to identify it rapidly, read multiple viewpoints, and come to our own conclusion. It is more important to look for changes in the framing of stories by liberal and conservative media: Editorial deviations from the left/right paradigm show that a significant change is underway. When conservative media frame a story in a liberal manner, something important is happening. Likewise, when the liberal media frame a popular narrative in a conservative manner.

How can we measure media bias and improve our political filters? Now I turn to . . .

Vanessa Otero’s Work on Media Bias

I am a financial adviser, not a political scientist, so I defer to the expertise of Vanessa Otero, founder of Ad Fontes Media and the creator of the Media Bias Chart®.  I came across Otero’s work when I was researching how to read financial news, we have corresponded by email, and I interviewed Otero for this article on 2 April 2020.

Let’s start with a graphic.


Media Bias Chart

Media Bias Chart

The Media Bias Chart® arranges various news outlets according to where they sit on the liberal–conservative spectrum, as shown on the horizontal axis. The Media Bias Chart also shows how reliable these news outlets are as sources of information, which is depicted on the vertical axis.

The chart looks like a normal bell curve distribution, with most media sources falling in the middle of the horizontal axis and a few at the right and left tails of the curve. The chart also shows that most sources fall into the middle of the vertical axis, and are reasonably reliable as sources of information, with a few outlets at the top that do original reporting of facts, and a few outlets at the bottom that contain pure propaganda or completely fabricated information.

Media Bias and the Junk News Pandemic

To put things in context, it is worth quoting from Ad Fontes Media’s website:

“At Ad Fontes Media, our mission is to make news consumers smarter and news media better.

“This is a tall order, because we have a big problem in our news media landscape: too much junk news. Junk news is like junk food, and just like junk food has caused massive health epidemics in our country, junk news is causing a massive polarization epidemic.”

First, I recommend Otero’s recent in-depth article about digital advertising in the age of social media: “Advertisers Cannot Differentiate between Junk News and Good Journalism.” I highly recommend it if you want to understand how digital advertising business models have made it virtually impossible for reputable companies to direct their advertising dollars to good journalism rather than junk news. It is a complex topic and Otero describes the dynamics of modern news quite well.

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Coronavirus and Political Bias

Otero also wrote the “Polarization of Coronavirus Stories,” which describes how the news ecosystem tends to frame stories about coronavirus in biased ways. For example, Otero notes how facts about the virus are often viewed through the lenses of such controversial political topics as the economy, immigration issues, Donald Trump’s performance as president, and racial/ethnic discrimination.

Otero notes:

“The inclusion of these political topics therefore introduces left-right divides into coronavirus articles. Most news readers conflate all issues within an article, though, and don’t mentally separate the non-partisan coronavirus facts from the related partisan topics. As a result, there are now entire conflicting left-right narratives related to coronavirus facts themselves. These conflicting narratives are causing people of different political orientations to take different levels of precaution, which is nuts.”

I agree that this is nuts, and it is tragically disappointing that political bias is influencing the medical precautions we take as individuals.

The rest of Otero’s work speaks for itself, and I won’t presume to summarize it here. I have found Ad Fontes Media to be accurate, robust, and objective, and the footnotes to be balanced and insightful. Otero is honest about the limits of her own perspective, and she incorporates feedback from others into the next iteration of her work.

This is about all you can ask from a person doing research on the entire media landscape and who shares the results with the public for free.

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Fiduciaries, Clients, and Political Bias

I manage money for clients as a fiduciary, which means that I put client interests first. I read all types of news, from conservative to liberal, and everything in between. I have noticed that clients are reacting to coronavirus in a wide variety of ways, based on their worldviews and their political views. In general, I have found that politically conservative clients view coronavirus one way, and politically liberal clients view coronavirus another way.

I respect my clients and their differences, and I try to give sound financial advice despite a client’s political beliefs. These days it is tough to have a candid discussion about the economy, fiscal policy, and the proper role of government. Clients are all over the place and it is tough to remain objective.

I try to read news and research in a balanced manner, and to observe capital markets as objectively as I can. I believe that as a fiduciary I have an obligation to perform investment research and management in a politically nonpartisan manner. I have opinions like anyone else, but I put them aside when I make portfolio decisions.

This is easier said than done because we are continually bombarded by biased media that frame the news about coronavirus in misleading ways. I described this challenge on 20 March in “7 Things that Covid-19 Taught Me About Confirmation Bias,” and my first point is that we must confirm the integrity of our sources.

The COVID-19 crisis has spawned a diseased and dysfunctional set of conspiracy theories. In order to fight our biases, we need to filter our sources carefully to ensure that the authors do not have a hidden agenda. We also need sources with intellectual honesty and intellectual courage to help us discover our blind spots and correct our mistakes.

Confirmation bias means that we believe what we want to believe, so we must remember:

Respect the other side of the trade.

Their money is as green as yours.

I welcome your feedback and I will respond in the comments below.


Additional Information about Ad Fontes Media

Vanessa Otero and Media Bias

Why does Otero use a simple left/right political axis? In her methodology, she writes:

“. . . several forces, including our country’s two-party system, tend to flatten those other dimensions into the liberal-conservative dimension that most Americans easily recognize. As Steven Pinker states in his book Blank Slate, ‘While many things in life are arranged along a continuum, decisions must often be binary.’”

For more on this topic, check out:

  1. Otero’s discussion of the Horizontal Axis of the Media Bias Chart
  2. Pinker’s Blank Slate
  3. Max Stearns’s discussion of political dimensionality
  4. Thomas Sowell’s A Conflict of Visions

Note: I agree with Sowell about the ideological basis of political struggles. Sowell describes the conflict that divides the left and right in how they view the world and human nature, with the left leaning towards an “unconstrained” vision and the right leaning towards a “constrained” vision. Pinker builds on Sowell’s work, and calls the vision of the left “utopian” and the vision of the right “tragic.” I have read both Sowell and Pinker and my summary relies on the Wikipedia description.

Further Links for Ad Fontes Media

If you liked this post, don’t forget to subscribe to the Enterprising Investor.


All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: ©Getty Images / Drazen Zigic

About the Author(s)
Robert J. Martorana, CFA

Robert J. Martorana, CFA, has worked on the buy-side since 1985 as a stock analyst, portfolio manager, research director, financial advisor, and editor of a hedge-fund website. In 2009, Martorana founded Right Blend Investing, a fee-based RIA that manages individual portfolios and does consulting for the asset management industry. RBI has one unique claim to fame in that it supports an orphanage in Andhra Pradesh, India. Since 2011, Martorana has published over 1,000 pages of contract research, and he is co-author of Alts Democratized by Wiley Finance.

7 thoughts on “How to Read Financial News: Coronavirus, Confirmation Bias, and Political Bias”

  1. jinesh says:

    Hey Mr. Martotana,

    Thanks! It was a good share amidst what’s going on out there in the world.

    With all due respect, your article towards biased news is mind-altering, but there has been this trend noted lately, people blindly following a political party without legit reasons and no matter how unbiased and legit news should be fed to them, they are just prone to it! They are inattentive to the true form of journalism. in such cases, what should be the persuasive measures should be taken to wake them from their daydreaming sleep?

    I’m open to any thoughts!

    1. Rob Martorana says:

      Jinesh,

      Thank you, and please call me Rob.
      : )

      “…there has been this trend noted lately, people following a political party without legit reasons…”

      First, we must be careful that we don’t become part of the problem. Pride affects you and me every single day, and it crouches at the door waiting for an opportunity. Just when we think we’ve got a handle on our pride, circumstances conspire to humiliate us, especially as investors.

      So I am careful to say that any person follows a political party without legitimate reasons. What about you and me? Are my reasons legitimate? Are yours? Says who?

      This becomes a metaphysical conversation very quickly, and well suited for an August afternoon over ice tea in the shade. For now, on a damp March evening in Covid-ravaged New Jersey, we’ll have to settle for an online conversation in the comments section at The Enterprising Investor (with a tip of the hat to the good folks who run this forum).

      You also wrote:

      “To wake them from their daydreaming sleep…” This assumes that WE are the ones who are awake, and not part of the unwashed, unenlightened masses. Who separates people who are “awake” from those who are “asleep”? Another conversation for a lazy afternoon…

      Nevertheless, you DO make a good point: How can we persuade other people to listen when they have strong ideological views? I am aware of only successful tactic when politics puts blinders on the eyes and earplugs in the ears, and the solution is rather unpalatable: We pretend to agree with the extremist, and we take the views even one step further to illustrate them the dangerous results of their fanatical position.

      ******************

      Ooops.

      I began to type an example, and then I crossed it out. Then I tried again and I crossed out that example, too.

      This is probably an offline conversation since I can’t think of a clear, concrete example that is suitable for publication on the CFA’s Enterprising Investor website. I’m not that smart.

      : 0

      Rob

      1. Jinesh Shah says:

        Thank you, Rob, for sharing your insights on my opinions.

        Yes, you acknowledged a precise point about pride. We tend to agree with our views that benefit us and simply rule out the view of others, may it be favorable or not, true or not. We only believe what we want to believe. I guess that’s the play pride plays with us all.

        And sure, whenever I will visit New Jersey, I’ll be glad to carry on this conversation metaphysically. Ice tea will be on me. 😉

        And I think putting blinders on the eyes and earbuds in the ears might provide us the momentary solution rather than permanent.

        I hope best for your wife, Janet. They are the true soldiers who hold against an invisible enemy and fight. Respect and love from India!!!

        Thank you for hearing me out.

  2. Kirk Cornwell says:

    In the late 20th c., a PBS broadcaster was fired for beginning “…and now, the so-called news.” He was ahead of his time. Now, the sources that should be trusted (especially for financial news) have fallen under the spell of glamour versus factual reporting. The recent obsession with the Federal Reserve and the airline industry comes at a time in which investors are desperate for intelligent information and analysis regarding a variety of other “vectors”. It’s out there, you just have to look.

    I am in awe of your wife and her colleagues.

    1. Rob Martorana says:

      Kirk,

      Thank you so much for the respect for my wife and her colleagues in the ICU. I hope that you and your loved ones are safe and healthy.

      “Now, the sources that should be trusted (especially for financial news) have fallen under the spell of glamour versus factual reporting.”

      Sadly, I have to agree that this is a widespread issue.

      But this isssue is the RESULT of a deeper problem: The rise of digital advertising as the driver of news, including financial news. Vanessa Otero does an excellent job of showing exactly how the advertising algorithms are unable to separate the wheat from the chaff, and the good journalism from the junk news (a pithy phrase, on loan from Otero).

      There are exceptions, since subscription revenue has helped the Financial Times, as noted here:

      https://digiday.com/media/long-term-planning-ft-now-1-million-paying-readers/

      Perhaps the solution lies with you and me as readers. We MUST be willing to pay up for subscription services since the financial incentives encourage research, not fluff and nonsense.

      “Investors are desperate for intelligent information and analysis regarding a variety of other “vectors.” It’s out there, you just have to look.”

      Any suggestions? I would LOVE to read some good old-fashioned industry reports that describe the companies and trends within a specific sector, asset class, or geography: energy, savings and loans, municipal bonds, inflation, applied artificial intelligence, R&D trends in China vs. the U.S., et cetera, et cetera.

      Sources I like:
      DataTrek
      Jim Grant’s Interest Rate Observer (though I can’t afford it)
      Fundametalis
      FactSet Earnings Insight

      What’s missing are the in-depth industry reports that aggregate all of the data in the sector, making projections and explaining the assumptions. I’ve written these reports myself and I know them when I see them. Maybe this stuff is just too expensive to publish online.

      These are the reports that I used to get when I worked on the buy-side, and I know that they are expensive and time-consuming to produce, relying on people with specialized knowledge and expertise. But this is exactly what you expect when you INVEST in research and not just in “Actionable Ideas,” a concept which is all the rage on financial media that caters to individuals.

      Okay, okay. Rant over.

      Thanks for listening.
      Rob

  3. Kirk Cornwell says:

    Rob — Yes, I was recently thinking of asking Grant’s for a “senior citizens discount”. This time of year, I actually read 10-K’s, looking at things most people probably don’t (inventory trends, “goodwill” (ha!) and other intangibles, cost of long-term debt and when it matures, and other “notes”). Companies in a “sector” are sometimes so different. Some of the smarter “talking heads” on CNBC can be found on their own websites expounding in more detail. The thing is, as you know, that last month’s ideas can be changed drastically by recent history.

  4. John says:

    I found your article because I searched for political bias in financial news. (Confirmation bias right?) An author was writing about the illegitimate rise in the stock market since the fall in March. That unemployment and Fed stimulus and risky amateurs were reason to believe it has been a false rally. And it should all come crashing down soon.
    I’ve been doing a lot of thought on this as well. Does the weekend destroy our economy or investments? Just two days out of the week? No. It’s a “pause” in the process. We shut down on Friday and resume on Monday. If we recorded it on a cassette recorder stopping on Friday and starting back on Monday, but played it back after a year, the recording would not have gaps, it would be a continuous stream. What about holiday break till New year’s? A week where most of us gap our financial lives. When we get back to work on New year’s day, we pick back up where we left off a week ago. No catastrophies. No casualties.
    My opinion of the coronavirus gap is the same. We’ve lost the potential to make money but have we lost real wealth? Maybe we have lost a little as the market is not completely back to its high (which was pretty high anyway)
    A Coronovirus gap, in my opinion should be no different than a weekend gap or a long holiday gap in productivity/income. The length of time is absurdly beyond a mere few days. But conceptually it’s no different. The system free fell because if a physical virus not a financial problem. The elephant in the room is just passing through (breaking a few dishes along the way). As the virus passes through time we will put our boots back on and go back to work. I will want to consume pretty much the same things I wanted to consume last December. I’ll want to go and do all the same things I did every other year. I’ll spend and invest pretty much the same as I always did. Those services and their production will get back to where they were.
    In summary, loss of income is not loss of wealth. I’m not saying it’s not painful I’m only saying it’s a gap. And if you can survive the gap, the other side will not be much different than before.

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