Sunday, April 20, 2008

Intepreting Financical Media

To apply financial news as a source of sentiment analysis, one must examine motivations of media sources. Despite that most information off financial news services present nothing but reiterated historical events, unfolding their incentives could mean the difference between losing and winning for common investors.

Wall Street Objectives

Financial institutions operate on a purely profit-driven basis, and it drives every single decision they make, including content pushed through mass media. In other words, they have no incentive to divulge effective information for the public, retail audience, and their personalities offer either clueless-ness or outright deception.

The above explains partially why those who react to financial news (which simply turns out trend-following) tend to buy at tops and sell at bottoms. Listening and trying to take media information verbatim does not usually end well.

Applying Financial Media for an Edge

Go against it. All of it. An “expert” opinion known throughout the mediums of radio, TV, internet usually asserts a naive guess or purposes of influencing the masses. By the time American media started spreading negative sentiment this year (off the credit market issues begun last July) short term losses had already reached an end.

The explosion of unenthusiastic opinion influence meant buying at the large institutions, and they can do so at bargain prices as remaining public investors sell off. Reversed scenario also occurs frequently as industry insiders plan to liquidate.

All said and done, the Gods of financial markets favor investors with enough conviction to turn against publicly pushed sentiment. Following the crowd often hurts, just like everything else in business.

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