In the era of the Internet and electronic media when information is available to anyone, it’s become easier to fall a victim to a pre-planned information attack. In this article, I want to tell you how to avoid this “doom” when analysing financial news.
When you’re overcome with market panic, you can take wrong investment decisions, which will make you lose potential profit or, which is worse, suffer losses.
From time to time, news media misrepresents a real picture; however, even in these cases, one can eliminate the unlikeliest pessimistic or optimistic scenarios. To be able to do this, one has to be well informed about basic concepts of the nature and special aspects of provided publicly available economic information.
Where should we start?
At first, you have to understand: ordinary people don’t have and will never have an amount of data available to civil servants just because some part of this data is highly classified information. Therefore, one should rely only on public sources.
Economic data implies a set of indicators that display the national economy state or show any changes in all its components. When performing market analysis on one’s own, it is recommended to use only documentary information sources.
When hearing the news about the national currency devaluation threat, most laymen neither go to the country’s Central Banks website nor try to find the data on the key economic indicators. Only the official statistics, which are very difficult to falsify because of globalization processes, should be taken on trust. That’s why an obvious negative trend is quite easy to identify.
Types of documentary sources:
- Primary: original numbers and readings for analysis, new scientific information.
- Secondary: interpretation of primary documents.
For example, a Central Bank may report on the consumer price index (primary data) and add some analytical comments to share its opinion about further developments of the situation (secondary data).
I would recommend our readers to rely on primary data when assessing financial markets because any possible interpretation is subjective. If one lacks knowledge, it will be better to take an industry-specific course. Now let’s talk about types of primary documentary data.
Types and sources of information
There are a lot of economic data classifications but we’ll talk only about the most important ones. The data is divided into:
- Forecasts: short-, mid-, and long-term.
- Planned: can be found in the economic calendar.
- Accounting: financial reports, national statistics.
If you’re a rookie in analysing economic indicators, it is recommended to stay away from ready analytical reviews because they are already distorted by the author’s subjective perception. It’s much better to work with primary data. Of course, in the very beginning, you may draw false conclusions but they will be your personal mistakes you’ll learn from. However, sometimes you should read opinions given by popular financial analysts to have a second opinion.
Leading sources of the economic data:
- State administration bodies: reviews, established standards, analytical reports, and statistics.
- Industry-specific news media – business magazines, newspapers, and TV programs.
- Public service media.
- Financial institutions: financial reports, investment presentations.
- “Think tanks” – communities of analysts that sell subscriptions to their reviews.
From the above-mentioned, you should prefer official information from government bodies and financial reports published by incorporated and unincorporated businesses. In this case, there is an opportunity to make up your mind without any subjective interference.
It’s important to note that popular (mainstream) media may “grinds their own axe” when feeding information or be censored by an owner of a government. Even in economics, there is an idea of “fashion”, when some topics are considered more popular and important, so they can be “given a new look” to achieve certain results.
When it comes to statistics and financial reports, the situation described above is rather unlikely. Of course, there are cases of data falsification, but they are quite rare because of serious consequences.
Algorithm of economic data analysis
Having dug into the classification of data and sources, let’s describe a short algorithm for analysis.
If the financial and economic news is all over the media, the following pieces of advice will help you to avoid falling a victim to the market frenzy:
- Stop reading/listening to popular media, both nationwide and industry-specific. Their main purpose is to attract attention but not to help make the right investment decision.
- Depending on the economic sector, rely on industry-specific government bodies and the companies that lead the sector. For example, in the case of Oil, they are reports from OPEC and oil/gas companies.
- Then compare the latest data with the historic one. There is a high probability that the latest data is not unique and you will be able to see how things were in the past. It won’t hurt to compare comments of the regulators’ heads on the topic you’re interested in over the last year. It will allow you to assess a real value of a newsworthy.
- Based on the received information, you can make an investment decision: join the crowd or go against it. Needless to say that you should adhere to your risk management system.
If you stick to this simple algorithm, you can eliminate up to 90% of useless media bubbles.
Now it’s time to draw some conclusions.
Closing thoughts
The information availability growth made analysing it more complicated and resulted in an increasing amount of different rumours, assumptions, and fake news, and the economic data is no exception. This, in its turn, may push readers or listeners to wrong investment decisions and then may incur losses. To avoid this, it is recommended to perform an individual analysis of an economic newsworthy.
To do this, one should use primary data from government bodies and corporations and try to avoid any interpretations made by third parties. Using the above-mentioned algorithm, one can identify the most essential aspects and make a well-considered decision.
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