How will investors behave with no newspapers?

stock quotesSlow 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.

  1. 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.
  2. 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.
  3. 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:
    1. 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.
    2. 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.
    3. 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.
  4. 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.
  5. 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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    10 responses to “How will investors behave with no newspapers?

    1. Great post

      I gave up on the paper so long ago I never thought of it again.

      How best do you reach these people?

      Agree independent evaluation and high integrity is most important.

      • Great comments, Tim. Reaching these people is tough. I know many newsletter publishers marketing via snail mail to try to reach these people a la Ken Fisher and according to them, the economics work. Other ways? TV/Radio, traditional mainstream media. How long before those guys go too?

    2. Great points here and completely agree with you, especially regarding the evolution of the investment newsletter. In fact, I think that could be applied to TV and other forms of video (the verifiable track record part). This crisis and horrible year in the market have definitely highlighted that we need trustworthy people commenting on markets with proven track records. Jim Cramer being berated by Jon Stewart is the perfect example. Credibility and accountability will definitely come to the forefront of the investing world.

      Jay
      marketfolly.com

      • Thanks for the feedback, Jay. It’s so hard to quantify trust because the incentives for gaming or playing the public are so great. Track records address part of the issue. A hedge fund manager with great, risk-adjusted returns shouldn’t be managing money that belongs in cash, or near-cash. How do we address vetting for integrity?

    3. Good point Zack, I think bringing integrity to the forefront as well will be even harder. You ultimately have to look at last year’s performance for instance and figure out, ok, “why did they do so well here?”

      Years like 2008 only come along every once in a blue moon and I think it’s the perfect barometer to gauge sensibility in markets. It’s one thing to react, but it’s another to be proactive. I have no idea how you can bring integrity to the mainstream forefront though, haha. That will take copious amounts of change on many different levels. Media is so dead-set in their “ways” these days. (i.e. CNBC bringing on the same people over and over again).

      Jay

      • Exactly right about integrity and how it relates to what transpired. Someone who was up 200% in 2008 probably took a huge gamble that ultimately paid off but is it right for a widow’s portfolio? I guess the point is that mainstream media is entertainment and we shouldn’t look for them to lead the integrity charge. That’s funny is so many ways….

    4. I would live to continue getting the local newspaper (Newsday). The reason I cancelled years ago was not only because of the internet but because of the poor service. What happened to the days when a local youngster on his bike made the delivery? Instead they went to professional delivery people who had thousands of papers to deliver, so they dumped them in the street, on the lawn, in puddles etc. Then, try to get hold of them. Impossible.

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    6. Jay,
      Great post and good comments. There is no current way to hold investment letters and perhaps more importantly television to task for claims they make as outside of perhaps Hulbert, no one is calling them on it. There must be 100 recommendations a day on CNBC, and who knows how many of them are contradictory.
      Casual investors, as opposed to full-time investors or traders, are the ones who will have the most difficulty separating the hype from reality and what will there be to help them?

      I still get my local paper. although it seems that with every month it gets smaller and smaller. The business section is now just two pages and a list of local stocks with meaningless quotes. The same deliveryboy/man? delivers the local and the WSJ so at least I get the hard copy at 4:00am.

      We can’t continually look to hedge fund managers as the model of investing for all as they are paid to make the outrageous bet that would see them up 80% in 2008. Again, how does someone who works 60 hours a week know who to trust and follow. More importantly, perhaps, how does his widow, who knows nothing about the market or money at all never having handled the family’s bills, know what to do. Not that the local paper would have helped but…..

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