How Media Coverage of Brazil Doesn’t Reflect Economic RealitySubmitted by Reby Advisors | Certified Financial Planners | Danbury, CT on May 27th, 2016
I recently spent a week and a half experiencing life in some of the biggest cities and most rural areas of Brazil, while also reading American media coverage of the protests and political turmoil that's been going on in the country. It's was eye opening and interesting to witness firsthand the disparity between reality and news reports.
It reminded me of one of the most common mistakes investors make: Media Response, the tendency to react to news without reasonable examination.
What Did I See in Brazil?
In response to allegations of widespread political corruption, millions of Brazilians across the country organized to make a unified political statement. At least on that day, it seemed everyone in the streets had the same message: President Dilma Rousseff must resign (note: she has since been "suspended" from office, with final impeachment hearing pending). There were massive trucks with platforms and powerful sound systems which interchangeably blasted Don’t Stop Believin’ and political commentary.
Of course, politics isn’t everything, and the protests weren’t the totality of my experience. I also witnessed beautiful, awe-inspiring sights of humanity and nature, and met wonderful people who were living life despite the political landscape that gets the most media coverage.
When major political news breaks here, it’s usually just a small slice of life for most of us, right? We have work, family, hobbies, and life goes on.
What Did the Media Get Wrong About the Protests in Brazil?
Most news reports I read weren’t technically inaccurate – but it’s a matter of the audience not getting the full picture. For example, some media coverage at the time focused on an artist that was tying blindfolds on statues as part of the story. I would consider this to be the media downplaying the importance and scope of these protests. This one artist hardly reflected the experience.
The other side of the media response was sensationalism of what appeared to be (from my perspective) limited violence. While I cannot downplay the violence since I did not see it firsthand, I will say that this was definitely not a faceless angry mob carrying pitchforks. This was a mostly peaceful, though passionate, protest by people that really love and care about the future of their country.
In fact, most Brazilians I spoke to referred to it as a “parade.” At times it had elements of a big party, reflective of the culture.
How Does Media Response to International Incidents Affect Investors?
Much of the media coverage that we are browbeaten with as Americans is designed to elicit an emotional response. That’s what attracts viewers and readers, and viewership or readership nets revenue from advertisers.
Too many investors make the mistake of allowing their emotional responses to these media reports – usually the emotions of fear and greed – to influence their investing behavior. Some investors may “stay away from Brazil” or “invest in Brazil” because of the partial or sensationalized coverage of events by the media, but my colleagues and I at Reby Advisors reject the idea that media coverage should influence your portfolio strategy. We advocate focusing on the underlying fundamentals of an asset class, as this positions you to capitalize on the investment mistakes of others as they make rash decisions in reaction to the media and their own emotions.
What’s Next for Brazil?
The media will likely sensationalize or marginalize Brazil a lot over the coming months as their political woes are weighed and the Olympics arrive. You may see further protests, possibly with more violence and possibly political turmoil. This is the dichotomy of Brazil.
I’m not making a buy or sell recommendation on Brazilian equities other than to point out that it’s a small “piece of a piece” of our current portfolio allocations; emerging markets equities are a small slice of the overall pie, and Brazil makes up a small fraction of emerging markets.
What I do know is that Brazil has risks. Some of those risks are different than the risks that we face in America. Owning asset classes that behave differently and have different sets of risk is what makes for a successful diversification strategy. Moreover, some of the potential returns from Brazilian markets COULD outpace ours in America. We cannot know for sure and that is why we diversify.
Brazilian equities and bonds are held as a portion of broadly diversified international and emerging market exchange traded funds owned by Granucci.