MUCH of what we know about events in life and business comes from hearing about them from friends and even people of authority. What is “small talk” after all except gossip from lunches and fake news picked up online? And such bits of information can shape what we think of people (he likes them chubby) and even drive how we invest our funds. (Is crypto a legitimate part of your portfolio?)

The “aural tradition” of keeping up to date feeds our fascination for conspiracy theories.

We need only follow the information pipeline of CEOs of big companies to see how hearsay can quickly substitute for research. The company itself may promote a certain narrative — maybe it is about growth premised on acquisitions, a diversification story to move away from a declining core business, a consolidation theme with headcount being reduced and divisions closed or sold.

Legitimate research organizations disclose the assumptions for their recommendations. They can even question official projections of next year’s revenues used as basis for the PE ratios justifying the IPO price. Even the company’s investor relations line is not automatically accepted if not backed up by data and strategic moves already taken.

Isn’t insider information used to buy or sell stocks based on hearsay and even small talk at a social gathering? (Don’t say it came from me?) Sometimes, this can result in an investigation afterwards — the company is not aware of the causes for the significant price movements and volumes in the stock.

The use of intermediaries in social interactions is accepted. Thus, an old-fashioned courtship can count on a cousin or best friend to gain entry into the circle of the intended object of affection. Can corporate practice be far behind, even in looking for a career change?

In her collection of essays, Practicing History, Barbara Tuchman writes that history must rely on facts. She emphasizes the importance of documentation rather than rumor (or even oral history) in establishing her rendering of historical events. Even the weather which provides the setting for a battle, or a diplomatic meeting is not casually established. More than one documented eyewitness account is used, and preferably, actual meteorological documents for that day.

The problem with relying on aural tradition lies in the reliability and objectivity of the source of an opinion and, more important, an appropriate context for his conclusions — is he an investor? Social media has even expanded the scale of the hearsay effect. Fake news has now been given even more leeway with the dropping of fact-checking as a condition for posting.

Business reporting can also suffer from a form of hearing impairment, that cannot separate facts from opinions. Because some media reporters (now including self-appointed “influencers”) can suffer from economic malnutrition, they can report on financial performance without understanding accounting principles. (Depreciation is not a cash expense.) Too often, the more accessible and easily understood (and overheard) parts of a business story tend to be highlighted. These are the human angles of rivalry, succession plans, and falls from power that may get more prominent play.

Sources of information for the “heard instinct” fall into the following categories: 1.) It was a subject in a breakfast meeting where somebody overheard something significant; 2.) It was spotted on YouTube with the commentator having strong feelings about it, pounding the table several times; or, 3.) It was Topic A at the gym from somebody’s personal trainer.

The authority for a story being cited is often unnamed, with a quote not made for attribution. (A person close to this official said it.) Viber groups now have internal debates on social issues. Even with the fiery exchanges and charges of fake news (that story was posted five years ago, you idiot) do not always weed out the hearsay effect.

In checking if a story is true, most are content with the ultimate test for accuracy — “That’s what I heard.” Some are willing to put money into an investment which they heard is going to double in two weeks.

In the social setting, gossip is queen. When the object of speculation and small talk happens to be about a CEO of a conglomerate, the grapevine just goes in all directions including the price of the listed company’s stock… and the fate of a romantic relationship.

Tony Samson is chairman and CEO of TOUCH xda

ar.samson@yahoo.com