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Fact Checking Helps

In the last few weeks there have been a handful of standout cases where poor reporting on an issue, including fake reports, led to significant negative outcomes for the companies involved. A couple of weeks ago it was a poorly dated news article about a United Airlines bankruptcy from several years ago that led to massive stock market losses for United Airlines, and most recently it has been a fake report about Steve Jobs having a heart attack that led to an immediate drop of 2% on Apple's stock, which recovered but still closed down 3% for the day.

Apple's famed reputation for secrecy makes it more likely that rumour and speculation will gain traction amongst Apple-watchers, but if investors allow themselves to be led based on nothing more than baseless rumour, it might go someway to explaining some of the volatility in recent stock and commodity markets. Any time an incident such as this takes place there are immediately whispers about stock market manipulation having taken place.

It is often said that people are smart and reasonable as individuals, but place them in a group and they become dumb, panicky herd-driven creatures. With the stock market being made up of a massive herd of investors, panicky and flighty responses can take place based on speculative and poorly referenced rumours, leading to major changes in the value (at least in the short term) of a stock.

On a smaller scale, malware authors and distributors have been spamming our inboxes for some time with fake news stories in an attempt to gain hits on their sites for drive-by downloads or clicks on malware-loaded content. Pink sheet stock pump and dump scams are also very similar, but on a smaller scale. In each case, falsified or exaggerated "news" is being pushed to users in an attempt to compromise a system or manipulate a stock.

What stands out from the recent cases is the seeming unwillingness for reporting organisations to admit responsibility for spreading the false or outdated news. If they hadn't picked up on the story, then nothing would have happened, yet when it comes time to apportion blame, it seems like they can't point the finger fast enough at someone else. In both of the recent cases it wasn't until the misrepresented story appeared on "legitimate" and "trustworthy" sites that the problems really began for the companies involved.

Rather than stand up and admit that they contributed to this latest event, CNN have handed over as much detail as possible on the alleged source of the Steve Jobs rumour to the SEC.

You can argue as much as you like about whether it is "New Media" versus "Old Media", but ultimately it is a case of poorly verifying content that has been published. The same problems still take place in print and broadcast media and it doesn't take too much searching to turn up errata columns where these errors are hopefully addressed.

7 October 2008

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