Friday, July 11, 2014

Why Do Journalists Chase Redheads?

Because, in the spirit of Willie Sutton, that’s where the money is.

Visiting Bloomberg offices recently, I learned that “redheads” are what the journalists there call headlines superimposed with red bars on the company’s news terminals. Redheads are the digital version an AP ticker chiming 12 bells and typing out “Urgent!” in the newsrooms of the past.

Reading some stories recently, I also learned that the compensation of journalists there is based, in part, on measuring how many “market-moving” stories they produce.

In other words, the more Bloomberg journalists can show they directly influence stock markets, the bigger their annual bonuses.

So I asked a reporter about this. He had offered me a latte from the legendary 6th Floor snack bar, and we were sitting on a sunny balcony overlooking Manhattan’s upper East Side.

“Since when is it part of your job to move markets?” I asked, in the same provocative way he sometimes questions me.

He said what I thought he’d say, in the same predictable way I sometimes answer him:
  • Reporters, naturally, are paid to break news; this is just one way of measuring it.
  • There are many in-house checks and balances before editors push the button on a potentially market-moving headline.
  • The metric for moving markets isn’t really that much of factor in overall compensation.

(I didn't ask the followup: If it isn’t much of a factor, why use it... if there’s any hint of a conflict of interest ingrained in the measurement?)

My own line of thinking is different:
  • Does a breaking news story move a company’s stock price, or the price of its competitors or suppliers, 100% of the time? Of course not.
  • When you compensate journalists for moving the market, you shift the focus. You create a gray area where some reporter or headline writer may be incented just enough to sensationalize or stretch the truth.
  • And in that tiny shade of gray, maybe only in a momentary window, you (or traders acting on behalf of your retirement or college-fund investments) will make or lose money.

I have great respect for journalists, and I know first-hand that Bloomberg reporters and editors, in particular, have a passion for accuracy. But could it be that this pay practice subtly degrades a core journalistic value?

Redheads are an understandable obsession. Ask Charlie Brown… or Wolverine… or any reporter who produces a story that screams “Urgent!”

But let's not forget the bigger picture:

Redheads exist to move hearts and minds, not markets.

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