Financial Mad Libs: How To Recognize and Ignore Them

The online media ecosystem is filled with all kinds of financial news. Quarterly earnings reports, Fed watching, political commentary, early retirement planning, etc. Much of this content is time-wasting at best, and actively harmful to your financial future at worst. But one type of online article that is particularly irksome to me is the Financial Mad Lib. Financial mad libs are automated content (written at least partly by a machine) that use publicly accessible information to stitch together a simple story about a company or economy.

What exactly is a financial mad lib?

Have you ever set up a Google alert for a company, or a stock ticker? If you have, you’ve probably noticed that many of the alerts you receive via email follow a specific pattern. The author gives some basic background information on the company, and then notes something that happened recently. Maybe the company released their quarterly earnings report, maybe the stock price just passed some milestone, or maybe one of the company’s financial ratios just rose or fell to an interesting level.

Then the author will give some context on the meaning of this recent event, such as what normally happens to similar stocks when that particular financial ratio is at that level. Depending on the ratio, the author might view this as a strong signal to either buy or sell that particular stock. Finally, the author will conclude with a list of ten stocks that exhibit this pattern even more strongly than this company.

Sounds fairly useful, right?

Who exactly is this author, anyway?

These articles are designed to give the impression that the author is some kind of financial expert, using carefully researched data and calculations to unlock the secrets of stock market valuation. But actually, there is no author! At least, not in any traditional sense. These articles are “written” in a few microseconds by a computer program. In other words, most of this content is fully AI-generated.

I use the term “AI-generated” as a catch-all for content generated without real human input, but actually the software that writes these articles is not very sophisticated, and doesn’t even need to use any modern machine-learning techniques. In fact, each financial mad lib article is simply a re-usable template that the computer program fills in with some specific facts. Hence the term, financial mad lib!

So how exactly does this work?

Here’s an example. Say I’m a stock broker that knows how to write a little code, and I want to automatically generate some articles that end with a “sell” recommendation for a list of the stocks that I want to buy from the market. I’ll start with a template like this:

This morning, ________ Inc.’s stock price increased to _____. This followed _______ Inc.’s positive quarterly earnings report on ____, _____, 2019. The news lifted _______ Inc.’s price-to-earnings ratio to ____.

Historically, price-to-earnings ratios of greater than 20 are considered to be high. A high price-to-earnings ratios is a signal that the stock price is high relative to the fundamental earnings the company is generating, and is a warning sign that the stock may be overvalued.

Based on this signal, as well as other proprietary analytics at our firm, we recommend selling _____ Inc. stock. To execute, please contact our broker below.

Then, I’ll write some code to scrap through the public Yahoo Finance data, searching for stocks that have ratios above 20 that match the list of stocks that I want to buy myself. I’ll also pull in all the data I need to fill in the rest of the blanks for each of those companies. Finally, the program will fill in the mad lib and publish the series of articles, and a few of those articles will trip your Google alert for the stocks you are following, probably because you own the stock. Maybe the article will make you a little nervous about continuing to hold the stock, and you’ll decide to sell to stay on the safe side.

What’s the purpose of these articles?

In this example, I assumed the author is trying to trick you into selling stock. But actually, more often than not, the author doesn’t really care about actually trading stocks. It’s just clickbait to get your eyeballs on some paid ads. Online advertisers know that people click on financial news for stocks they own all the time.

So the programmer doesn’t even really have any intent to trick you into doing anything about the article. They just want to produce an interesting headline, and then make a scaffolding of a reasonable-sounding financial article to support the ad content that is the entire purpose of the exercise. Needless to say, this is a big waste of time for you.

How can we avoid this lame, robot-generated content?

Well, one way to avoid these types of spammy financial mad libs is to just avoid financial news in general. Most of if, even the human-generated stuff, is not very useful for retirement planning anyway. If it’s not going to affect your long term wealth, what is the goal in reading it anyway?

But, if you get some harmless entertainment value out of reading about the economy and the stock market, it’s important to carefully curate your sources. Read sites that actually do research, and follow some sort of logical framework for making an investment recommendation. You’ll notice this criteria prunes out a lot of sites, including “reputable” ones.

As you read an article, ask yourself, “Has the author done any actual analysis?” Or are you reading a list of widely available facts and figures without context? And be on the lookout for the pattern we examined earlier: 1) Statement of a single fact about Company XYZ, 2) a generic explanation of why that fact matters for investors, and 3) a link to either learn more, or to find other companies that exhibit this fact even more than XYZ. Ultimately, most financial mad lib articles are designed to generate ad views, not investment actions.

Additionally, steer clear of Google alerts for company tickers. These alerts pick up a lot of these trashy mad libs and other bad information. There are, in fact, lots of analysts who do deep analytical dives on specific companies, producing lots of valuable investment information. But these analysts tend to want to get paid for their hard work, so they generally don’t blast their reports out to the public internet in a way that’s scrape-able by a Google alert.

But seriously, consider just ignoring all financial news! You’ll notice in my weekly financial news digest that I rarely link stuff that is “hot” news or time-sensitive in any way. I try to stick to stuff that has long-term relevance to the economy and your retirement savings. You should too!

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