Mark Twain said, “If you don’t read the newspaper, you’re uninformed. If you do read the newspaper, you’re mis-informed.”
Swap out “read the newspaper” for “watch cable news” and that’s still a startlingly accurate assessment more than 100 years after he said it.
Consider the following comments that clients have emailed to me in the last couple of weeks:
1) “I may be more nervous than some people, I’m a serious newshound. However, I’m getting extremely cold feet about the political situation. I know stocks continue to go up on business’ reaction to Trump’s policies, but I simply can’t imagine that his craziness isn’t going to catch up with him, and us.”
2) “I’d wanted to keep my accounts conservative until after the election, because I thought Hillary was going to win and I assumed the market would tank. But I have to say I’m PUMPED about President Trump and wondering if it’s time to get more aggressive. I think we’re going to see a terrific 3-4 years in the market. Would you agree?”
3) “Why is the market still going up? Do people not see what’s happening in our country? There’s a new protest or riot every day. I’m going to stop watching the news and start watching The Bachelor instead. I might end up dumber, but at least I’ll be able to sleep at night.”
Those comments represent some different worldviews, but all three of these folks have one thing in common—they consume a lot of news.
Think back to the way that you got your news a few decades ago. You had the morning newspaper and the evening news.
People actually paid significant sums of money to advertise in the newspaper, which meant newspapers were able to actually pay reporters and practice journalism.
The evening news lasted a half hour and was designed to inform you about the major stories happening both nationally and internationally. There was no time for discussion, just state the facts and move on.
These methods weren’t perfect (clearly Mark Twain had some issues), but there were some advantages that they had compared to media today.
Look at the current media landscape. Nobody reads an actual, tangible newspaper anymore. As everything moved online, less credible news outlets suddenly started being viewed as having the same credibility as the well-established journalistic beacons of the past. Because the barrier to entry in the media world was now so much lower (it’s much easier and cheaper to launch a website than it is to print a newspaper), we ended up with an ever-increasing number of “news outlets.” Because of the increased supply of media, it became much harder for the outfits practicing actual journalism to find the ad revenue they needed, which resulted in cutting staff (meaning fewer journalists) and more salacious headlines and stories to increase page views (meaning less actual journalism).
The evening news, which used to last a half hour, now runs 24 hours a day. On three different major networks. Unfortunately, there’s just not that much news worth reporting, so we end up with four-person panels debating a topic to death and “experts” from different sides of the aisle yelling at each other until we’re all convinced that there will be a civil war commencing tomorrow afternoon.
So what we’re left with is a lot of hysteria. Most people live either in a state of intense fear that the republic is coming to an end or a state of euphoria based on the belief that the current leadership is leading us to the promised land. If you were in the state of euphoria a year ago, you’re probably catatonic right now. And vice versa.
All of these emotions are reflected in the investment world. Both intense fear and unmitigated euphoria are feelings that you shouldn’t be allowing to dictate your investment decisions.
Back to our three clients that we mentioned earlier. The good news in all three of those cases is that they have an advisor—me—to keep them from making any hasty decisions about anything. But for every investor who has a coach to prevent them from leaping off a tall building, there’s probably six or seven more who don’t have any guidance and end up making the hasty decision. That’s one of the main reasons that the market can be so volatile. The highs are higher than they should be and the lows are lower than they have to be.
I don’t advocate living in a bunker and ignoring current events, but be careful how much you allow the media to dictate your emotional state. That’s not good for your mental health or your portfolio.