Have you heard the breaking news story about the dog that bit a man?
Of course not. That’s not news. A dog biting someone is fairly routine. What about the news story about the man biting a dog? Maybe that was newsworthy about 20 years ago, but even that is blasé. To make news now, the man would have to bite a dog while riding a unicorn through a cotton candy rainbow.
Now that’s news! Everything else is lame.
In the publishing world, the age old adage is, “If it bleeds, it leads.”
Magazines, newspapers, TV producers, and radio hosts have one and only one goal. It’s not to inform; it’s to hold your attention. That means they must titillate, frighten, and shock you with one story after another.
This is why the short pitches promoting that night’s news are always, “There is a common household product in your kitchen slowly killing you and your family. News at 11.” That will grab your attention and get you to tune into the 11 o’clock news broadcast.
We are programmed to respond to threats and fear.
Remember poor cave boy? He was too cerebral and got eaten by a lion. Our ancestors, the ones who survived and reproduced, passed on the “oh crap” gene. Anything remotely scary or threatening grabs our attention. We then feel compelled to react.
The media are experts at exploiting this natural trait in each of us. What does this have to do with investing? A better question is what does this have to with bad investing? Everything.
What makes most bad investors bad investors is not so much that they choose poor investments; often, the investments they chose are just fine. What makes them bad investors is they buy or sell at the wrong time. They hear a news story or read an article and it freaks them out so they sell. Then the market goes up and they get back in. Or they hear about a great fund that has done really well the past year and jump in, and then the fund doesn’t do as well. They are constantly reacting to real or perceived threats and trading their investments – selling if they think the market is going to go down. Unfortunately, this is the one thing that almost guarantees they’ll lose money – always getting out and then back into the market. It doesn’t work.
Just today, I went to one of the most popular financial websites in the world and these three articles were front and center on the homepage:
“You should care about this warning of a sharp collapse.”
“What to do when the S&P 500 nears its Zone of Death.”
“This stock market is losing its cool. Here’s what to do next.”
Seriously. I didn’t cherry-pick the website or the timing. I went to the website and just looked at the top of the homepage, and these were the headlines. And it’s always like this. It’s always, “the world is ending, so get out,” or, “things are going to skyrocket, so you’d better get in.” And the really disturbing thing is these sell now/buy now headlines can occur on the same day! You’ll often see them on the homepage at the same exact time.
And just for the fun of it, I went onto the website a couple of days later and here were the headlines:
“The signs that say a stock market correction is close.”
“Traders take cover for fear of big shift in market mood.”
“Not-so-secret ingredient: Ikea’s Swedish meatballs.”
It would be comical if it didn’t cost investors so much money.
The takeaway?
If you follow the markets too closely, watch the business TV networks, read too many financial blogs, or listen to too many financial experts, you’ll be inclined to want to “do something.” That something is often to buy or sell, and it is usually the worst thing you can do. All this financial chatter, or as it is often called, “financial pornography,” is just a bunch of media people trying to get you to click or tune in. They are not trying to educate you. They are not trying to help you become better investors. They are trying to scare the you-know-what out of you so you keep coming back day after day to figure out what you should do next. Stop sucking on the financial fear teat. Grow up and see the world and the games they are playing for what they really are. One of the best decisions you can make as an investor is to turn the noise off. If you did just that one thing, you’d dramatically boost your investment performance, and as a side benefit, sleep a little better at night.
Okay, the next lesson is the one you’ve been waiting for. I reveal the one investment trick you need to know. This is one you won’t want to miss.
The proceeding blog post is an excerpt from Get Money Smart: Simple Lessons to Kickstart Your Financial Confidence & Grow Your Wealth, available now on Amazon.
About the Independent Financial Advisor
Robert Pagliarini, PhD, CFP® has helped clients across the United States manage, grow, and preserve their wealth for nearly three decades. His goal is to provide comprehensive financial, investment, and tax advice in a way that is honest and ethical. In addition, he is a CFP® Board Ambassador, one of only 50 in the country, and a fiduciary. In his spare time, he writes personal finance books. With decades of experience as a financial advisor, the media often calls on him for his expertise. Contact Robert today to learn more about his financial planning services.
