It is 9:38 AM EST on a Monday and I am pouring myself another cup of coffee and preparing to meet with our team for our regular Monday morning meeting. I turn on the TV and flip to CNBC (on mute) so that I can watch the market movement out of the corner of my eye. The market has only been open for about 8 minutes, so I do not expect to see much in the way of news yet. Of course, that is a silly expectation as CNBC, as with all news outlets, would never let that happen. At 9:38 AM, 8 minutes after market open, I am greeted by the following headline: “Dow, S&P 500 Lower for July with Today’s Drop”. The key words in this sentence are, “today’s drop”. The day has barely begun and already CNBC is calling for the day to end in a “drop”. Regardless of the day’s actual outcome, headlines like this can make even the most disciplined investor wince. After all, if a big news outlet like CNBC is already calling the day a failure, then what are the chances that the average investor is going to come out ahead? But the reality is that headlines like this should mean absolutely nothing to the average investor saving for their retirement.
In high school, I used to stay up late and watch reruns of the classic improv comedy show, “Whose Line is it Anyway?” The headlines on CNBC and other financial news stations are a lot like the opening tagline of the show, “everything is made up and the points don’t matter”. The fact of the matter is that big financial institutions and media outlets follow the same, simple template that every newspaper and TV anchor has followed for decades, “if it bleeds, it leads”. Even if the bleeding is only a small, flesh wound 8 minutes in to the trading day.
Now don’t get me wrong, sometimes the headlines prove correct! That was the case on this particular date in question. However, they just as often get it wrong. Ultimately, it matters very little to the media conglomerates whether or not they predict the ups and downs in the market on any given trading day. What they care about is eyeballs watching their coverage. An early morning financial crisis complete with red, flashing headlines reading “market sell-off” certainly has a way of garnering attention.
The side effect of selling the news is that it often causes panic for investors. Reading the headlines every day is exhausting and anxiety provoking. Too much exposure to the constant negative coverage of the markets can lead to even the most seasoned investor calling it quits just to make the world stop spinning. The effect of a news cycle that moves faster than any normal person can process, is irrational investor behavior and emotional decision making.
So how do we combat this? Should we stick our heads in the ground and ignore the news entirely? That is definitely not the strategy that I am recommending. My suggestion, which I am sure is beginning to sound like a broken record, is to look to your financial plan. When the world feels out of control, look back at the things that are most important to you. Remember that those things are what drive your decisions, not scary headlines and talking heads. Sometimes, changes do need to be made, which is why it helps to hire a professional who has your back. However, more often than not, the ship rights itself and you would be better off making no changes at all.
We have experienced an unusually long bull market run and many new investors have never truly experienced the effects of hard times hitting their investment accounts. When a downturn will happen is anyone’s guess but media hysteria is virtually guaranteed. Save yourself stress and worry later by creating a plan now that is rooted in your goals and priorities, not the media giants’.
As of this writing, my surrogate NBA team, the Milwaukee Bucks, have a chance to clinch the series and win the NBA championship! I don’t have much time to watch NBA games anymore, but this theme song takes me back to watching the Pistons win the championship in ’04. Enjoy!