Slow death of the newspaper and how investment decisions are affected
While news and the proliferation of information is booming, clearly the newspaper industry is on its way out. Its current revenue model just can’t support a quality newsroom in the face of widely available free information on the Internet.
Numerous industry analysts continue to discuss the evolution of the news business (see Jarvis and Rosen as two of the best) but no one seems to be discussing the fact that beyond local news, many investors who are less Internet savvy still receive much of their investment ideas/information from the old-school paper.
Older investors disproportionately hurt
While my 96 yr. old grandfather learned how to use Yahoo Finance before his death two years ago, I think older investors are hurt the most by the demise of the paper.
This affects more than just getting stock quotes from your local Sunday edition. This is about generating new ideas and monitoring stocks in existing portfolios.
Given the fact that we know investors are totally prone to home bias, that is over investing in domestic and even local firms in spite of knowing that investing more abroad lowers risk, the loss of a local paper can be really detrimental in both the discovery and analysis phases of investing.
5 things that need to happen for investors in a post newspaper world
I wanted to use this post to explore some ideas how investors can make better, more informed investment decisions in a post-newspaper world.
- More Internet consumption: I know this sounds so intuitive but there really has never been anything to compete with the level of breadth and detail on stocks, mutual funds and ETFs that the free Internet offers. We have to help investors migrate away from newspapers as sources of financial information and hook up to their digital counterpart. This is happening anyway as younger generations cut their teeth on Internet tools but we’re still a long way away from general literacy in using financial tools on the Internet.
- Financial tools education: This will require new sorts of financial education on how to use such tools. This education should address both older investors who are not as generally familiar with the Internet, as well as younger investors who live and work on the Internet but need some more hand-holding in terms of learning how to access financial information. I give monthly investing seminars and am always interested to see how familiar average investors are with what’s available. Generally, they are open to help and can use it.
- Evolution of the investment newsletter: As the ad-based model of media also suffers from a depressed advertising cycle, I predict investors will turn more to premium, subscription products. Unfortunately, much of the financial newsletter industry is based on unsubstantiated hype. Performance is important but so is fitting investments into an overall plan, managing risk, explanation, and creating an investment system that jives with investor lifestyle (people working 60 hr/wk should not be daytrading). Investors need to see:
- Audited performance metrics: New web firms like Covestor allow investment advisors to audit their risk-adjusted performance. Investors need to better understand the power of these tools and how to use them in terms of do-it-yourself investing or hiring a professional. Mark Hulbert has been monitoring the industry for years. We need more.
- More types of newsletters: Most newsletters take a trading focus. It makes sense because they are competing on performance. Performance is just one (important) criteria, though and we need to see more newsletters that differ in style. Buy and hold, dividend investing, retirement investing, macro, etc. Investors need to be able to size themselves up, determine their needs and then accurately shop for the premium product that best fits their requirements.
- More responsible marketing: Some many people are susceptible to predatory and misleading marketing of newsletters. “Up 1000%”, “Profit Machine”, “Minting Money” — terms like this make investors think that newsletters are sure things. They’re not and the volume of spam I receive with messages like these is increasing. Newsletter will play an even more powerful role as more people decide to take a do-it-yourself approach in the wake of this market fallout. Like Sean, I believe that we’ll see more hybrid “do-it-yourself-with-professional-guidance” models emerge. Newsletters must take on more ethical responsibility.
- Changing Investor Relations role: Like most industries connected to the meltdown in the financial sector, Investor Relations is looking itself in the mirror and grappling with its future. For sure, it’s not going away as someone needs to play the role of matchmaker between company and investor. But that doesn’t mean the current model of press release + road show with mutual funds + conference is the only way forward. The Internet has changed the way people invest and how they research investments. IR is beginning to realize the power of social media and needs to step up to best represent their firms and position themselves for the changing needs of investors. There is so much that can be done here — new models, new distribution, new clients.
- Better alerting systems: A moderate to heavy Internet user who monitors his/her portfolio with some regularity should notice big changes. Probably not with enough forewarning to do something about a problem immediately but within enough time to make a decision. Do I want to stay in this stock after the company has cut its dividend? Made an unsolicited offer for a competitor? Others need a better way to monitor their portfolios according to their requirements. If a retirement investor wants to take an active role in managing the portfolio and doesn’t hear from a broker regularly or check the Internet, there’s going to be a problem. Google Alerts can help investors stay abreast of breaking stories. But it’s not good enough because it requires some understanding of how to structure the queries. Many brokerage platforms allow SMS messaging for extreme price movements but investors don’t know how to use these things.
We are witnessing the changing of historical proportions as we cope with the evolution of the media industry. Although much of investing has moved online, many are still attached to the old form newspaper. I’m looking forward to seeing the changes happen that bring every investor into the fold.
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- How an investment advisor is using new media to grow his business
- IRWebReport: a good resource for changing IR industry and here’s a recent presentation on IR 2.0