Conscientious Financial Planning and Retirement Income Management | 201-741-9528
from Lonier Financial Advisory LLC, Osprey, FL

Beware Hyperbolic Financial Reportage

Beware Hyperbolic Financial Reportage

This from CNBC’s News Desk today: “To say that the month of May has been a Wall Street washout would not likely be considered hyperbole: the major U.S. averages are coming off their biggest weekly losses of 2012, and the Dow and S&P 500 are now on track for their biggest monthly losses since May of 2010.”

Really?

Some journalists, apparently, are trained to write this very kind of hyperbole, or at least learn by watching their colleagues, with whom they compete for your attention.

Technically the “the highest monthly losses since May of 2010” may be true. But that technicality is not very meaningful. The situation is actually quite different from the implication that was wrenched from the facts to construct this attention-grabbing lead.

During the 11 trading days beginning with July 25, 2011—last summer—and ending on Aug. 8, the S&P 500 dropped 225 points from 1344 to close at 1119.

That’s a 16.7% drop in 10 out of 11 down sessions, a sizable shock…which occurred at the end of July and into August—two trading weeks crossing two months.

So, yes, during the 11 out of 13 down sessions starting this past May 2 and ending Friday, the S&P 500 lost 110 points and 7.8%, all within the month of May. In May 2010, The S&P closed down 8.3%. And last May the market was peaking—it’s the only other May in the CNBC comparison. So much for the facts.

So is the CNBC lead really significant?

Or is more important to know that last summer the S&P dropped 16.7% in 11 trading days, and that over the past two and half weeks, a similar period, the S&P has dropped 7.8%, less than half the drop of last summer?

Does knowing about the relative difference between these two drawdowns change how you feel about the most recent drop? Are you better able to consider this current market in a larger context, such as the Treasury downgrade, budget and debt ceiling impasse, and Euro-credit crisis that came together last summer vs. the more mixed indicators we’re seeing today? Do you see that as bad as the past two weeks have been, that a drawdown could easily be double the recent drop if business and market risk increases significantly? Are your investments allocated in such a way that you are comfortable with that kind of risk?

Today’s CNBC hyperbole is a smallish distortion, perhaps, but cumulatively, these slants add up, designed to capture your attention emotionally and to influence your behavior.

As an investor in charge of your own financial destiny, you should seek information that helps you prudently answer the kinds of questions posed above. And beware the pot-stirrers and product-mongers who profit from the panicky fears and wild-eyed dreams they’re apt to inflame.

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