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Investment Insights, Inc.

Why Are You Telling Me This?

“No one loves the messenger who brings bad news.”
Sophocles 442 BC in the play Antigone 

But what if the messenger isn’t telling the truth?  What if he or she is exaggerating, or extracting parts of the truth and mixing it with outright lies and distortions to give an entirely different meaning to the message?

Maybe we should kill the messenger sometimes, at least metaphorically.

One of the most important questions I ask when I receive information is, “Why are you telling me this?”  Of course, I don’t ask this about all information, but anything that sounds even a little shocking or unexpected, this is a very important question to ask.

For example, during the 2020 presidential campaign, then President Trump warned that if Biden was elected we will have a recession like you’ve never seen.  Of course it’s too early to know if that prediction will come true or not, but I think it’s safe to say that prediction was not based on any economic indicators. 

The “Why are you telling me this?” test, when applied to Mr. Trump’s statement is very clear.  He told us that because he wanted to scare voters into voting for Trump. 

In other words, maybe politicians aren’t the best source of economic forecasts because their objective is not to actually forecast the economy, it’s to get me to vote for them. 

When I watch the portfolio of a bond mutual fund say on TV that the stock market is terribly over priced and horribly risky right now, it’s clear that his or her motivation is to get me to invest in bonds, and hopefully in their particular bond fund. 

When an equity mutual fund manager says on TV how wonderful certain stocks are now, and that they are so wonderful they are already in their fund, that manager is doing what is called talking up her position.  The companies mentioned may actually be good investments, or, the manager may need you to buy and push the stocks higher so they can sell at a higher price. 

Does this mean that every talking head on TV or video or blog writer, or, etc, is either lying or hopelessly biased.  No.  Not at all.  But many are and it’s important to try to separate those analysts trying to do an honest job and those trying to do a snow job. 

And here things can get a bit complex because our own biases play a big role in who and what we choose to believe.  Maybe the most insidious bias of all is confirmation bias.  Someone says something that emotionally is in tune with what we believe.  Our tendency is to accept it without much thought.  Of course it’s right, we think, because it agrees with what I think. 

It’s so dangerous because it further cements ideas that, because they confirm our bias, we don’t bother to check.  We simply assume they are correct. 

I am, unfortunately, intimately familiar with the danger of confirmation bias, and even though I am alert to it, I still manage, sometimes, to fall for it. 

It’s that insidious.  You need to check for it in people giving you information and in yourself. 

And while we’re on the subject of checking information, here’s another one.  Relative/subjective terms that are commonly used.  Terms like big, largest, small, etc.  These are pretty meaningless terms.  Beware of them too.  Ask what they mean by large.  For example, sometimes a prospective investor will ask me if we accept small accounts.  But problem with the question is that my understanding of what is a small account and his might be entirely different.  A real life example – I was having an after golf drink with some clients at a Los Angeles Golf Club.  One of the clients said something about members of their golf club that had a net worth of only $10 million.  This was accompanied by a hand gesture that looked like he was sweeping away crumbs off the table.  So I stopped him and asked, did he just refer to people with a net worth of only $10 million like they were so much riffraff.  He replied, “Well Hal, you have to understand that at this club members look their noses down on anyone with a net worth of less than $20 million.” 

So his definition of small was quite different from what yours and mine might be. 

To tie this together, if you want to really understand what is going on, ask questions.  Get clear what is being told to you and why before accepting it outright.  Politicians are not the best source of economic information.  They don’t have the expertise.  Their expertise is in telling people what they want to hear.  That’s far from an accurate source of information. 

You wouldn’t normally ask your doctor how to fix your car, or your mechanic how to cure a medical condition.  You want to get your financial information from financial professionals and your economic information from actual economists.

And be wary of vague subjective statements no matter the source.  Words like large, a lot, small, risky, etc are all vague descriptive terms that convey what the person telling you thinks, but not enough information for you to know what they mean. 

Hal Masover is a Chartered Retirement Planning Counselor and a registered representative. His firm, Investment Insights, Inc is at 508 N 2nd Street, Suite 203, Fairfield, IA 52556. Securities offered through, Cambridge Investment Research, Inc, a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Investment Insights, Inc & Cambridge are not affiliated. Comments and questions can be sent to hal.masover@emailsri.com These are the opinions of Hal Masover and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. Investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including total loss of principal. Past performance is no guarantee of future results.

Indices mentioned are unmanaged and cannot be invested in directly.

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