Don’t let the stock move dictate your story (Hello, Felix Salmon)

February 24, 2011

My blog entry on reporting the Washington Post Co’s quarterly results without an outside voice produced a comment from my Reuters colleague and columnist Felix Salmon. That makes me happy because things that interest Felix tend to interest lots of his fans. It also makes me happy because Felix always produces a well considered point of view, regardless of whether I agree.

I wrote about something that happens all the time in business news: A company says something, then the stock moves. Sometimes it moves in the direction you would expect, other times it moves for some other reason. Sometimes it just moves — up, down, or maybe nowhere. We’re supposed to explain why the share price is moving or not moving, and for that we’re supposed to find outside voices who can speak with authority about the company, the line of business it’s in, or other financial topics. It’s such a standard part of daily news reporting that you learn to do it automatically.

I’ve never been content with this because sometimes the stock moves, as Felix notes, just because. Sometimes traders sell when I think they should buy, and the opposite. Sometimes I think the market is wrong. Trouble is, many editors are not about to believe a reporter over the entire market. Often, they may be right to do this. Often, the stock DOES move in the way that you suspect that it might. Sometimes when I talk to the analyst, I worry that I’m asking the witch doctor to throw chicken bones in the dust at high noon and asking him to read what the spirits are telling me in the shadows they cast. And hell, sometimes I just know better than Wall Street. So do most beat reporters who spend some time on the beat.

None of that is all that important, however, when your editor says, “go get some comment.” Orders are orders.

Meanwhile, here’s what Felix wrote. I promised it several paragraphs ago. I annotated like it was going out of style.

“smarter than the Wall Street gang” — THAT’S your criterion? Pretty low bar to hurdle I think.  [I was sloppy and careless when I wrote that. Of course we’re smarter than the Wall Street gang. A thousand pardons. –RM]

The really depressing thing is that all your smarter-than-Wall-Street analysis got included ONLY BECAUSE the stock fell and you needed some kind of explanation for it. [True. –RM]

First choice was to call up some random Expert and reproduce whatever came off the top of his head; second choice was to actually write what you know. [Again, true. I called my favorite quoteman. He wasn’t in. I called me next to talk about the newspaper stuff. Ananthalakshmi is the education expert, and we called her too. When in doubt, consult yourself. -RM]

Nowhere was it considered that the fall in the stock might not have a cause in the earnings, maybe the stock just ended up falling, as stocks often do on high-volume, high-volatility days like earnings days. [I thought this for about five seconds, then remembered that they don’t put the sugar pellets in my cage for speaking heresies. But seriously, just because it might not have a cause, it’s still worth trying to talk to someone. Readers never suffer because journalists asked more questions. They only suffer when reporters rely on rent-a-quote witch doctors. -RM]

I’m all in favor of writing what you know and not relying on sell-side analysts for instaquotes or random theories about why this stock went in that direction. But I’m also all in favor of writing what you know ANYWAY, regardless of where and whether the stock was moving.

The story in the earnings was the story in the earnings, but in reality your story would have been very different if the earnings had been identical and the stock had gone up 5% rather than down 5%. [Yes. In fact, we rewrite these stories all the time when the stock suddenly “changes direction.” Editors say we should not write “but” ledes to start our stories. The result is that we will rewrite the top of stories all the time to focus on a different aspect of the news. I would not say that the rewrites are deceptive, but they do make you feel like you’re abandoning something in which you previously had faith. I’m all for changing my mind, but sometimes you have to consider how it looks to your readers. -RM]

There’s no good reason for that. [What can I add? -RM]


[…] In which Robert Macmillan agrees with me on market reporting — Reuters […]

Posted by Counterparties | Read NEWS | Report as abusive

Very nice dialogue here. I have a couple of things to add.

A hypothetical: A company puts out earnings. The numbers and the forecast are “better than expected.” It’s not a major company we cover. So the reporter turns to other things on his agenda. The next time he picks his head up, the shares are cratering.

I do believe we need to make a good faith effort to find out why. That’s what people are paying thousands of dollars a month for. If there’s a smoking gun, we have to find it. In the above example, let’s say the company said on a conference call that we blew off that the company would delay shipments of widgets until the following year. That’s news.

Now if there is no “smoking gun,” the reporter has a problem. Stocks often rise and fall on “technical factors.” Regressions to the mean, moving averages, Fibonacci retracements, relative strength indicators — all sorts of things that we reporters poo-poo, crack jokes about and, quite honestly, don’t understand.

Editors hate “technicals.” They make for boring copy. And they’re somewhat subjective. You can bend them to fit any kind of thesis you want. But there is a failure to recognize that billions of dollars are trading based on this “voodoo,” as one editor called it.

At the same time that we poo-poo technicals, we seem to have no compunction about noting a rising market and attributing it to macro-economic factor. The following day the market could decline and we’ll dismiss the macro-economic factor that we reported the previous day.

Writing to the stock price can be a fool’s game. Sometimes the stock price isn’t the story and we shouldn’t pretend it is. But a sharp stock move could mean that people see things that we journalists don’t see. We should be humble and curious enough to investigate what that is.

Derek Caney

Posted by djcaney | Report as abusive

the interesting thing is that price often reacts to price which is noise. Real signal is changes to value in the company as a competitive business. often price is random and day to day is of little importance or merit it is a capricious system output reflecting opinions at a given point in time.

headlines about price sell newspapers. investors who understand boring business fundamentals make money. sadly most people are looking for entertaining reading rather than real knowledge. It would be tough to sell ads against 3-5k word articles about 1-200 bps margin enhancements in a sector due to some innovation as the audience is vanishingly small.

Reading about great athletes or sporting events doesn’t often make one a better player, but it is entertaining and sells lots papers and TV ads. Most Business Journalism is to business what sports journalism is to sports, a way of amplifying the entertaining, but not a way of cultivating skill via praxis. Don’t mean to be critical as the “true business journalism” is found in narrow trade journals such as pipefitters weekly or beverages today, broadsheet business journalism is mostly just price porn.

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