Another one from the archives I was saving for while I am otherwise occupied. Enjoy.
Having a fluency in the writing arts is one of the prerequisites for a career in journalism. The ability to sum up an event in an understandable manner is crucial. But people with highly developed language skills often lack a similar set of skills in mathematics. They can be literate, yet innumerate.
This is highly problematic for those who cover financial news.
On an all too regular basis, the media finds itself doing the bidding of clever and sophisticated spin doctors who work for corporations, trade groups, and others with a specific agenda to pursue. Look no further than the annual holiday shopping forecasts as it gets unthinkingly parroted by the usual suspects in the MSM.
They ought to know better.
The most recent journalistic error involved a young, dumb kid making outrageous claims about his trading prowess to New York Magazine. The first mention of this should have immediately raised red flags for everyone involved:
— Barry Ritholtz (@ritholtz) December 14, 2014
We eventually found out that these guys hadn’t made any thing, much less $72 million dollars, and they were mere “paper trading” and basically, fabricated his returns. The NY Observer headline had I right: New York Mag’s Boy Genius Investor Made It All Up. New York magazine eventually changed the headline, but the damage was done.
Even writers who lack a facility with numbers should be skeptical to begin with. To paraphrase Carl Sagan, outrageous claims demand outrageous, beyond any doubt, proof. We have not seen that in the two examples above.
Any journalist covering a story with specific and hard to believe claims must be capable of asking very specific questions about those claims. Consider our whiz kid trader:
• What is the context of his claim of claimed performance? Did the supposed $72 million he made in trading start at $10,000 or $100m? Lacking that context means we have no idea what the performance was, even if it were $72m number was true.
• Is anyone really going to amass a spectacular track record by trading under their desk in High School class? Does it make any intuitive sense that some random kid is going to beat the best equipped, fastest and smartest algorithms, run by firms with effectively unlimited resources to pursue trading profits? That claim alone should get your spidey sense tingling.
• In any financial dealing, there will ALWAYS be ways to verify what occurs – trade documentation, assets held at custodians, audits from accountants, monthly statements from brokers. Lacking any of these should always be a giant red flag to reporters.
Next, a pet peeve: The uncritical acceptance of what paid public relation flaks or investor relations persons have to say about, well anything. It is their jobs to obscure unpleasant facts from the public’s eyes.That should make reporters even more aggressive and skeptical.
Let’s get a bit more specific, and to be blunt, personal.
Recall my column last
month year revealing Pimco’s enormous bonus $1.5 billion bonus pool. As you might imagine, the numbers were so huge the story went viral. It was covered in great detail elsewhere (see e.g., this, this and this). However, the article also created more examples of journalists lacking appropriate skepticism — and numeracy — in the face of obvious spin.
As expected, the PR folks at Pimco denied the reported data, and they did so in a very disingenuous way. Hey, bullshitting people is their job. I understand that, But it’s a reporters’ job to understand the issues and ask appropriate follow ups.
That did not happen in several articles.
A little background: My source was thoroughly vetted by the editorial team at Bloomberg View. My colleague at Bloomberg News, Mary Childs, had two other sources. Having three separate and independent sources confirm the numbers – my source, plus two additional sources from Childs, made the bonus number for Pimco, Bill Gross, and the rest of the managing directors rock solid.
But the PR people claimed the numbers were wrong. That these enormous (and in some people’s view) outrageous numbers were so large the PR flaks needed to downplay them. Which is what they did, saying “While Pimco does not comment on compensation, the figures provided to Bloomberg are not correct.”
Here is where proficiency with statistics and data comes in handy: The dictionary definition of “correct” is “free from error; in accordance with fact or truth.” Following that definition, Pimco’s PR flak’s were only in the most technical sense correct when they said the $290 million dollar bonus was “not free from error.” However, that was done on purpose. To protect out source, we “rounded” all of the numbers to remove any precision. That changed the potential number of people who had access to the numbers, from a handful to many more. Providing the exact numbers to the penny would have pointed to a small number of potential sources, and we did not want to get our source in trouble.
This allowed Pimco to claim that a hypothetical bonus of $99.96 that was reported as $100 to be “incorrect.” They can honestly make a claim that the round, non-decimal number is not precisely correct. And while they might be right that the number is imprecise, it is – and this is the most important aspect of this discussion – “in accordance with fact or truth.”
In other words, it is imprecise but accurate.
The folks at Pimco were trying to thread the needle, challenging the numbers precision while silently ignoring its accuracy. That’s a clever way to deny something they know to be true, yet not actually tell a lie in response to the question.
“Are the numbers accurate (if not precise)?”
“Is that an approximation of the bonuses paid?”
“Are these within one – two percent of the bonus pools paid out in 2013?”
Had those question been asked, PIMCO would most likely have lapsed back to their “no comment” posture – a nondenial denial. Wink wink, nod nod, the bonus numbers were truthful and very close to the actual dollar amount, even if they were (purposefully) not the precise number to the penny.
Since then, we have obtained even more confirmation about the accuracy of these numbers. In Mary Childs most recent article, she noted she had “interviews with 25 current and former Pimco employees, who asked for anonymity to discuss internal matters.” No one denied the numbers previously discussed, as Childs reported:
“Gross built Pimco with some of the best long-term investing track records, and was the face of the bond market with television appearances almost every day. Assets at the firm doubled between 2010 and 2013, making Gross one of the best-compensated money managers, with a bonus of about $290 million in 2013, a fortune even by Wall Street standards.”
I took that as a damning indictment of those who merely parroted the usual PR denials.
Look, the reality is that Journalists HAVE TO deal with PR people all the time. The job of the flak is to present their employer in the best possible light. However, the role of the journalist is not to act as mere stenographers, blindly accepting what is told to them by the PR staff as gospel. It is incumbent on those in the media that to probe and push and question the spin doctors to get closer to the truth.
And to be blunt, quite a few failed to do just that.
Bringing the truth to light is the job of the Press. Journalists need to learn to ask the smart follow ups to the PR folk, including more probing questions of those people whose jobs are to obscure the truth from view. Reporters need to be smarter when it comes to numbers.
Don’t get played.