Lehman Brothers bought back its own shares yesterday, in a move which shocks Yves Smith and worries Barry Ritholtz. But how do they know that Lehman bought back its own shares? The bank made no public announcement to that effect. All they have to go on is a story in the WSJ, headlined "Lehman Is Seeking Overseas Capital". Towards the bottom of that story (in paragraph eight, to be precise), we find this:
A second rumor, that Lehman was buying back shares, turned out to be true, people familiar with the situation said. Such buying helped the stock pare its losses Tuesday. (Please see Abreast of the Market, and Heard on the Street.)
Still, the stock has fallen 18% in the past three sessions.
It was unclear how much stock Lehman Brothers bought back…
If you see Abreast of the Market, you’re told nothing about buybacks. If you see Heard on the Street, you’re told this:
Following an 8.1% drop Monday, Lehman shares slid 9.5% Tuesday. The latest decline came even though Lehman was buying back large amounts of its own shares.
That’s it.
So, how to read this? Are Smith and Ritholtz right to uncritically believe what the WSJ (and no one else) is saying? Yes.
To be sure, there are a few niggling issues that get raised in the mind of a cynical old hack like me when I read this kind of thing. For one thing, there’s the placement of the news. The WSJ got information which no one else had, and it’s newsworthy: even as Lehman is working on selling its shares, at the same time it’s buying them, which is pretty weird at best. Yet the story doesn’t even hint at its scoop until burying it near the end of a story about Lehman’s negotiations in Korea.
But that’s a question of news judgment, not a question of reliability. The hurdle for printing a fact in the WSJ is the same at the bottom of a story about Korea as it is anywhere else. If you’re sure it’s true, you print it; if you’re not sure it’s true, you don’t print it.
And what about the sourcing? What exactly is the WSJ sure of? Is it sure that Lehman is buying back shares, or is it just sure that "people familiar with the situation said" that Lehman was buying back shares?
It is hard to understand what that clause is doing in the story: if the journalist, Susanne Craig, was really sure of her facts, why did she put it in there, rather than simply stating, as the Heard on the Street column did, that Lehman was buying back shares, and leave it at that?
There are two reasons for the sourcing being there. The first is that it makes it clear that what we’re reading is WSJ reporting, as opposed to simple stenography: this doesn’t come from an official Lehman Brothers announcement. Which is interesting in and of itself: most companies which buy back their own shares make quite a song and dance about it. The second reason is that it’s simple best practice, in US journalism, to back up all your facts with an explanation of where they came from, and that’s what the WSJ does.
That said, the WSJ’s sourcing is regularly as vague as "people familiar with the situation". They’re saying that they’ve talked to someone who knows the facts, that they believe their source to be trustworthy, and that they’re signalling their belief in that trustworthiness by publishing the fact in the newspaper. What they’re not trying to do is wow you with the reliability of their sourcing by stressing how well-informed their source is, in the way that other newspapers might quote a "senior administration official".
And they’re not putting the sourcing in there as a way of covering the WSJ’s ass: they’re reporting the fact, not the statement-of-the-fact by some anonymous source. If it turned out that Lehman wasn’t buying back its own shares, then the WSJ would run a correction, no matter what their source had said, and the story would be considered to have been erroneous.
So, what about the column? As a column, it doesn’t operate under quite the same sourcing rules, and so it simply states, baldly, that Lehman was buying back its own shares. It does, however, operate under the same rules about factual accuracy, so one can assume that the authors of the column, Peter Eavis and David Reilly, are quite sure that they’re right on that front.
Can one assume that they did their own reporting on the matter? Not really. It’s entirely kosher for Eavis and Reilly to talk to Craig, find out the information in her story, and then use it in their column. On the other hand, while Craig said that the size of the buyback was "unknown", Eavis and Reilly said it was "large", without providing any more details. Maybe Craig’s story served to confirm something that Eavis and Reilly hadn’t quite managed to nail down; I’m speculating here. But as a general rule, if the WSJ prints something twice, that doesn’t mean it’s more reliable. And if it fails to print something three times (the buyback news didn’t make it into the market report) that doesn’t make the news less reliable.
Of course, all newspapers, including the WSJ, make mistakes, and I’ve been critical in the past of the way that the WSJ buries its corrections. But unless you have some reason to believe a WSJ story to be false, it’s a reasonably safe assumption that it’s true. I certainly think that something exclusive to the WSJ is significantly more likely to be true than if it was only on CNBC, say. There’s no such thing as a 100% reliable source, but the WSJ comes about as close as anyone.
For that reason, it’s entirely reasonable for Smith and Ritholtz to pick up the story and run with it, without stopping to wonder whether it’s true or not. That’s one of the big advantages of reading the WSJ over reading blogs: you don’t have to be second-guessing the whole time, thinking about who wrote the story, what axes they might have to grind, and whether they might simply be completely wrong. And it’s one of the reasons why Rupert Murdoch was willing to pay billions of dollars to get the Wall Street Journal: that kind of reputation for reliability is extremely hard to earn, and hugely valuable once you’ve earned it.
