In my last column, I noted that much of Warren Buffett’s success as an investor is due to a particular investment sensibility, his view that the world is getting objectively better in most ways.
Just a few examples…
Wars between nations are down. So are civil wars and terrorist attacks. Gun violence is down, as are domestic violence, divorce rates and abortions.
People are living longer than ever. Educational attainment has never been greater. Standards of living have never been higher.
Poverty is down. Prosperity – as measured by wages, household income and household net worth – is up.
People hold less racist, sexist and homophobic views than ever before. And the so-called gender pay gap vanishes after occupational choice, education, experience and hours worked are taken into account.
These are facts, not opinions.
Yet they surprise many people. Why?
Because it is the opposite of the picture painted by the mainstream media.
In fact, More in Common, a group dedicated to building stronger communities by lessening social division and polarization, found that heavy media consumption actually gives people a poorer understanding of the state of the world:
We found that the more news people consumed, the larger their Perception Gap. People who said they read the news “most of the time” were nearly three times more distorted in their perceptions than those who said they read the news “only now and then.”
Some folks assume that they would be better investors if they were only able to stay on top of the news cycle. Yet the opposite is the case. And it’s not hard to see why. For starters, most of what happens from day to day and week to week is mere trivia.
Comedian Jerry Seinfeld once quipped that it seems odd that there is always just enough happening in the world each day to fill a newspaper. In fact, most days’ actual news could easily fit on a single sheet of paper.
No investor needs to be in a state of constant reaction based on the headlines or their news feed. It is far easier – and safer – to make a few solid investments and sit on your hands.
The other reason high media consumption is a detriment to investors is the overwhelmingly negative tone. Part of this is just the nature of the news. Nobody wants to hear about the buildings that didn’t burn, the planes that didn’t crash and the companies that didn’t file for bankruptcy.
Cable channels highlight a litany of woes each day, with stories ranging from political corruption to natural disasters to forecasts of impending doom. Human beings are hardwired to be on the lookout for threats, so these broadcasts attract eyeballs. And, more to the point, advertisers.
How do you combat these distorted views?
Or by reading books like these, which ought to be required reading in every high school:
- The Rational Optimist: How Prosperity Evolves by Matt Ridley
- It’s Better Than It Looks: Reasons for Optimism in an Age of Fear by Gregg Easterbrook
- Factfulness: Ten Reasons We’re Wrong About the World – and Why Things Are Better Than You Think by Hans Rosling
- Enlightenment Now: The Case for Reason, Science, Humanism, and Progress by Steven Pinker (the best of the bunch in my view).
After all, if the country is on the wrong track and the world really is going to hell in a handbasket, why would you risk a single penny of your hard-earned money in the stock market?
Many believe that whether you see the world as getting better or not is just a matter of being an optimist or a pessimist, as seeing the glass half-full or half-empty.
Not so, writes Harvard psychologist Steven Pinker:
In fact, the question of whether progress has occurred is a matter not of “optimism” but of what Hans Rosling calls “factfulness“: calibrating our understanding of the world to empirical reality. If measures of well-being, such as health, prosperity, knowledge and safety, have increased over time, that would be progress. In fact, they have. As Rosling and others have shown, most people deny progress not out of pessimism but out of ignorance.
Want to be a better investor? Don’t spend more time with CNBC or Fox Business or The New York Times.
Pick up one (or all) of the books mentioned above.
There you’ll find the antidote – the verifiable facts – that counter the relentless media negativity that leads not to knowledge and prosperity… but to ignorance and confusion.