Broker Check

Really Confused

July 17, 2015
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As I write this article I am concurrently looking at two financial websites.  They will remain unnamed to protect the guilty.  Just a splattering of headlines read: “Historic day for Wall Street as Nasdaq rallies past Dot-Com era high”, “Traders bet on Twitter near-term gains as takeover chatter persists”, “5 Cash-Rich Stocks to Triple Your Gains; What Jim Cramer Likes”, “Euro Area Ministers Fail to Reach Greek Deal”, and “It Now Takes Almost Twice as Long to Get Hired as it did in 2010”.  By the way, another headline in a printed publication read “Nonfarm Payrolls Increased 280,000 in May, Beating the Consensus Expected 226,000”.  Those last two seem to really conflict.  

So what’s the point?  What does all this mean to most investors?  Short answer is absolutely nothing – which is the point.  One of the worst things for investors in the past 30 years is the 24-hour news cycle.  Gone are the days of Walter Cronkite dominating news with a 30-60 minute newscast every evening.  Only important things were reported because media companies did not have to fill 24 hours with “news”.  If you consume news, sports, finance, etc. the same stuff is reported over and over.  It’s really hard to imagine that enough of importance happens every day to require 24 hour reporting from myriads of sources.  

Specifically, how does this harm investors?  Let’s go back to our headlines above for a couple of examples.  What do you think or, more importantly, feel when you read, “5 Cash-Rich Stocks to Triple Your Gains”.  Wow, let’s make some money; put in a $1 and make $3!  Conversely what do you feel when you read, “It Now Takes Almost Twice as Long to Get Hired as it did in 2010”?  We are doomed, the world as we know it is about to end!  

These ads are designed to appeal to your emotions. They attempt to make you read them.  More importantly they attempt to have you look at ads littered over the page.  This drives more advertising revenue for the media firms.  

Unfortunately, sensationalism sells – particularly the negative variety.  In reality, the ads make Warren Buffet richer and look even more like a genius.  I quoted Warren Buffet in a previous article which said he makes most of his riches from other people’s fear and greed.  The first ad appeals to greed.  Invest $1 make $3 and retire early; pure greed.  The second ad appeals to fear.  No one can get a job, our economy is going to spiral downward; pure fear.

One of the best financial decisions you can make is to turn off the noise.  Secondly, listen to a seasoned professional tell you the boring story of how dollar cost averaging into good funds over a long period of time can help grow your wealth.  Not very newsworthy but really good advice.    

Gary James, CFP®, AIF®, CPA
Financial Advisor