Printing the Rumor, Selling the News

“Buy the rumor, sell on the news,” has long been a bit of Wall Street folk wisdom.

The saying underscores the role of the financial press in reporting the daily twists of a decidedly uneven market - and, some critics say, exacerbating every wretched excess. But what happens when rumor is passed off as news?

Start with the basics: When does a stock’s decline become a “plunge”? At a loss of 20%? If so, what do you call 19.5%?

Endless skull sessions by top editors and exalted media gurus couldn’t figure that one out. So is it unreasonable for the financial press to avoid “crash,” “panic,” “apocalypse,” “Armageddon,” “meltdown” or “freefall” in news stories?

Probably not, but that won’t stop some readers from saying the financial press is pulling its punches to protect Wall Street. That’s not as silly as it sounds, because reporting, by definition, is one step removed from the action. Reporters depend on a good working relationship with their sources to ferret out the news. A reporter who burns, or even ticks off, a source will read the next scoop in the competition.

When jargon and a self-consciously insider attitude fill a news story, you know the reporter has stopped writing for the news outlet's readers and seeks to curry favor among sources. Chalk this up to ego rather than a low, sloping forehead. Keep in mind that professional organizations -- including those covered by reporters -- give awards that some reporters covet, and a drawer full of otherwise meaningless blue ribbons can boost a career.

The downside: This go-along-to-get-along attitude can lead to caution, conformity and a follow-the-pack mentality among reporters.

News is a fast-paced business, and speed counts. The need to be first with a story can lead to mistakes - though you can never discount the possibility of run-of-the-mill incompetence. However, even top-notch reporters aren’t immune: In July, The New York Times dismissed as “absurd” chatter that Barclays (BCS) would buy Lehman Brothers. Well, behold: Last week, Barclays agreed to buy Lehman’s core US broker-dealer business for about $2 billion.

But that raises another question: Does speculation, especially from a reporter, serve the reader? Does anyone have a handy distinction between informed analysis and speculation in the current market?