"What Does This Mean?"

Earlier today, I was talking to a good friend of mine who was wondering what do with her portfolio and she complained that she was further non-plussed by all the media coverage of stocks. Reading the financial news, I have a lot of sympathy for anyone with the job of actively managing money for a living or for their personal account, so I'll try and help out a little with what type of news piece to read and what not to read. Take a look at these two articles about exactly the same event - the oil price movement - this morning. One is from Marketwatch, while the other is from AP. The reason I pick out these two news organizations is not absolutely random either: Marketwatch is owned by Dow Jones, and the DJ people tend to work very closely with AP journalists. In a lot of bureaus, they actually share the same office, and in most, they share the same building.

Here are the lead and second paragraphs of both articles:

Marketwatch:
Crude erases 2007 losses as data extends rally
Larger-than-expected supply decline sends futures as high as $61.80 a barrel
NEW YORK (MarketWatch) -- Crude-oil futures extended their rally Friday, pushing the front-month contract into the black for the year, in a continued response to data showing a far bigger-than-expected decline in heating fuel during last week's bitterly cold snap, reducing unusually high stockpiles following a mild winter.
Oil also got a boost after some geopolitical flare-ups: Iran defied United Nations demands that it stop enriching uranium, and traders got jitters amid fresh violence in Nigeria's oil-rich Niger Delta region.

AP:
Oil Trading Slow on U.S. Inventory Drop
Oil trading slow as market reacts to surprising drop in U.S. gasoline, heating oil inventories
Oil trading was slow Friday as the market adjusted to a surprising drop in U.S. gasoline and heating oil inventories.
Light, sweet crude for April delivery nudged just 1 cent higher to $60.96 in light electronic trading on the New York Mercantile Exchange, midafternoon in Singapore.

Just for the record, this is bad business journalism in both cases. I hardly need to point out that one can infer completely different scenarios from these two articles about the movement of the oil price. This type of mistake is usually down to a failure of business journalists being educated in the subject they are writing about; namely, business. Both articles miss completely the main paragraph, too, as a result: what I call the "what does this mean?" graph. If you like, it's the "where should I trade?" explanation part of the article. An article is only as useful as a chart if there is no paragraph telling the reader what the news being reported means, and this is in almost every case the giveaway of the difference between business journalism written by someone who really understands what is going on and someone who doesn't quite get it.

A person who can tell you what something means understands the topic they are writing/speaking about, whereas someone who cannot does not. In the case of both these articles, the "what does this mean?" part of the story is side-stepped by inferring whether this is good or bad news into the headline, which is also a classic mistake (to be fair to the Marketwatch piece, there is a sort-of-meaning in the seventh paragraph, but it doesn't relate to the headline very well). A headline does not tell you what something means - it tells you what's going on. (Incidentally, this is not a comment about Dow Jones and Marketwatch, both of which are usually very reliable, although reading business news from the AP is almost always completely misleading, as I have pointed out before).

Now, the same story by Bloomberg:

Oil Is Little Changed After Rising on Fuel Supply, Iran Threat
By Eduard Gismatullin    
Oil traded little changed in New York after rising to the highest price this year after U.S. fuel inventories plunged and analysts said supplies may be disrupted if Iran is sanctioned again for developing nuclear capabilities.
U.S. stockpiles of distillates, including heating oil and diesel, fell 5 million barrels last week, or 3.8 percent, the biggest drop since September 2005, according to the Energy Department. The U.S. and European nations will meet next week to draft a second sanctions resolution against Iran, the second- largest Organization of Petroleum Exporting Countries producer.

Definitely less sensational, but it summarizes the complexity and ambiguity of what's going on really well, without jumping to a conclusion before all the facts have been laid out. Then, succinctly, follows the "what does this mean?" graph:

``The main risk to the oil price is either a boycott of trade, isolating Iran, or a military attack,'' because either would ``influence the production and supply of oil from Iran to the world market,'' said Thina Saltvedt, an analyst at Nordea Bank AB in Oslo. Distillate inventories ``will influence the price'' until winter ends in the Northern Hemisphere, she said.         

This gives a meaning to the story - the global supply-chain with specific emphasis on Iran - and a time-line, namely, when winter ends in the Northern Hemisphere. Now that's news you can use.

Comments

[samuel.mckinley]

Very perceptive research. Is it too much to ask that a journalists' anchor their article to some sort of tangible fact, such as current market prices or insider opinions? surely that's journalism 101?

[Don]

While there are thousands and thousands of opinions on the market in general (and they are best ignored), there are only two behaviors...buying and selling. We seek these so called expert opinions because they provide a level of comfort in an uncertain world, especially if the opinions match the way our portfolio is arranged. Personally, I would rather have my portfiolio set up to match the behavior of market participants. Right now the buyers are in charge, so I stay long. When that changes, so do I.