How To Read the Financial News
You can’t always take what you read at face value, especially in the age of AI-generated content. New artificial intelligence technology allows machines and algorithms to create various types of content; everything from articles and blogs to images and videos. Here’s how you can sift through the news to get to the actionable insight you’re after.
Be Critical of What You Hear and See
AI-generated content can be hard to identify, but luckily, there are extra steps you can take to ensure it’s coming from a reliable source. Taking a critical eye to anything you read is important. Ask yourself these questions:
- How was this created? When it comes to synthesizing sources and answering user-generated questions, artificial intelligence has certainly changed the game – but AI-generated content is prone to error. If you're unsure of how the content was created, utilize fact-checking websites or similar research tools to confirm the facts. It's becoming increasingly difficult to distinguish AI-generated content from human work. Maintaining a healthy skepticism and reaching out to your Baird Financial Advisor when something feels wrong can help you tell the difference.
- Why was this created? Ask yourself if what you're consuming was made to inform, to entertain, to sell – or something else entirely? Cast a skeptical eye toward the first few results of any online search – they are almost always sponsored content, otherwise known as ads. Plus, sensationalized headlines are often used to generate clicks and do not necessarily reflect reality: As stock analyst and portfolio manager the late Robert Martorana, CFA, once lamented, “Investment blogs have embraced the golden rule of tabloid journalism: simplify, then exaggerate. Pseudo news and pseudo analysis clutters the web, making it harder to stay well informed.”
- Is this factually true? In today’s environment, fact and opinion are often mixed without clear distinction. In a recent study at the University of Illinois, researchers found that fewer than half of participants could distinguish factual statements from pure opinion. While unbiased, fact-focused news sources may seem increasingly rare, it remains critical to seek out multiple reputable sources. This makes it easier to spot inconsistencies and get closer to the truth. It also exposes you to different perspectives, potentially preventing you from building an echo chamber of your own opinions or AI-generated misinformation.
- How does this apply to my plan? Ultimately, actionable content should be very rare, particularly if you’re invested for the long haul. Morgan Housel, author of The Psychology of Money, sums it up well: “Every piece of financial news you read should be filtered by asking the question, ‘Will I still care about this in a year? Five years? Ten years?’ Read old news and you’ll quickly see that the life expectancy of your goals is higher than that of the vast majority of headlines.” If something piques your interest, run it by your Baird Financial Advisor to get their take. They can help you filter this information to determine what’s important and how it could impact your investments.
Question Your Biases
While AI-generated content is prone to unchecked biases, humans have the unique ability to self-reflect. If we are aware of our biases, it’s easier to remain open-minded as we consume content and make important financial decisions. Be aware of these biases when reading the news:
- Negativity bias, the evolutionarily hard-wired idea that negative events and experiences are more potent (and thus linger longer in our minds) than positive ones of equal size. This reflects a tendency to discount positive news and latch onto the negative. A 2023 article in Nature found that after controlling for all other variables, news headlines containing negative language received significantly more clicks compared to neutral or positive language.
- Confirmation bias, the idea that we look for and better recall information that supports our existing beliefs or values. This issue is particularly potent today given the social media echo chambers and abundance of “media” outlets. This is why seeking out differences of opinion and multiple credible sources is key.
- Political bias, a filter that we (consciously or subconsciously) apply to new information to make it conform to our pre-existing views of the world. As the world divides more and more across partisan lines, media has followed suit. Identifying, acknowledging and ultimately dealing with both our own political biases and those of the media organizations we follow are critical. This also relates to framing bias, which occurs when we make decisions based on how information is presented or discussed, rather than its actual substance.
- Illusory correlation, the idea that a strong relationship exists between two uncorrelated variables. This is the bias that leads people to confuse correlation for causation. It’s particularly key in finance, where there are endless amounts of data, and everyone is searching for indicators that will lead to outperformance and better forecasting.
We live in an era of information overload fueled by artificial intelligence. As a result, rethinking how we approach financial news can be a very useful tool. That’s also why working with a Baird Financial Advisor is so powerful: Your advisor will help separate the real news from the noise, providing tailored, objective advice and building a financial plan aimed at helping you reach your long-term goals.
Note: This article was originally published in August 2020 and was updated in September 2024.
The information reflected on this page are Baird expert opinions today and are subject to change. The information provided here has not taken into consideration the investment goals or needs of any specific investor and investors should not make any investment decisions based solely on this information. Past performance is not a guarantee of future results. All investments have some level of risk, and investors have different time horizons, goals and risk tolerances, so speak to your Baird Financial Advisor before taking action.
