The World War That Wasn't

Joel Litman

Editor's note: The market and our offices are closed on Monday, May 29 for Memorial Day. Please look for your next edition of Altimetry Daily Authority on Tuesday, May 30.

When folks heard about the Martian invasion, they packed their bags and fled...

In 1938, Orson Welles' groundbreaking War of the Worlds radio adaptation supposedly caused nationwide hysteria.

The truly inventive audio program was meant to sound like a real-life breaking news broadcast. Welles reported that aliens had landed in New Jersey and we were under attack.

The next day, so-called "mass panic" was plastered across newspaper headlines around the country...

War Skit on Radio Terrifies Nation The Detroit News

Radio Listeners in Panic, Taking War Drama as Fact – The New York Times

Radio Play Terrifies Nation – The Boston Daily Globe

Only, here's the thing... It wasn't true at all. The newspapers grossly sensationalized the broadcast's impact on the country. As it turns out, the War of the Worlds incident probably wasn't worth jotting down in the history books at all.

This misconception is still widely accepted today. Podcast service Radiolab claims 12 million Americans listened to the broadcast... and that 1 in 12 believed it was real.

The night the program aired, the C.E. Hooper ratings service called 5,000 households for its national survey. A mere 2% of respondents said they had tuned in to the program. That means if every person in America was listening to the radio that night, an absolute maximum of 2.5 million people heard Welles' broadcast.

And even if we accept Radiolab's 1 in 12 number, no more than 200,000 people believed we were under alien attack... or 0.1% of Americans at most.

It turns out the newspapers blew the event way out of proportion. Radio was still relatively new and posted an existential threat to the printed news industry. So newspapers jumped at the chance to highlight the dangers of this up-and-coming new form of communication.

The War of the Worlds misconception is a valuable lesson about taking news at face value. Today, we'll take a look at how this applies to the world of financial media.

All of the media you consume has some level of bias behind it...

It's no secret that we're skeptical about what a lot of the mainstream financial media says.

Media companies are moneymaking entities. And they make that money by holding your attention for as long as possible.

That's why talking heads like Jim Cramer are constantly pitching new stock picks. It's not because they're great stock pickers... or because they have your best interests in mind.

It's to keep you tuning in day after day.

If you actually traded like Cramer, you'd be losing money. In fact, you'd likely be better off shorting Cramer... and some folks have done so with great success.

Just ask Quiver Quantitative, which has invested using an "inverse Cramer" approach since the beginning of 2021.

The strategy is pretty simple. It monitors Jim Cramer's recommendations, and it shorts his top 10 most-recommended stocks at any given time.

The strategy has returned 29% annually for the past two and a half years. The S&P 500 is only up 10% total over that time frame.

No wonder Mad Money's average audience size is down almost 25% since this time last year. And yet, folks still tune in to plenty of other financial-news shows that tout stock pick after stock pick... all in the interest of getting viewers hooked.

It goes to show that there's no one definitive best source of information... especially when it comes to investing.

You can't simply trust that you're getting the best advice from any single news source, no matter how popular it is.

Whenever you are doing research or consuming media, always ask yourself what their angle is. Seek as much confirming and disconfirming evidence as you can. Read two or three articles from different sources before making your final verdict. If possible, track down primary sources like annual 10-K filings and quarterly earnings transcripts.

Even the least biased of analysts have to trim down their information... They simply can't include every data point out there. And their opinions are going to bleed into the narrative. It's just human nature.

Without a careful evaluation process, it's easy to get caught up in that narrative. And it can send you straight into the path of a dangerous investment idea.

Wishing you love, joy, and peace,

May 26, 2023