Ignore Media Noise
BREAKING NEWS!
“Stocks on Track for Worst December Since The Great Depression”
“The Best January in 30 Years Could Mean Good Things for 2019”
I wanted to draw your attention to these two important investment headlines published by major media outlets within 45 days of each other—just months ago. The first virtually screams at investors to sell, and the second offers the hope of buying into the best opportunity in decades!
Take a look below at a chart from Hartford Funds. It shows a comparison between Internet users’ searches of “CNBC” and the S&P 500’s market performance. As the S&P 500 went down, the searches for “CNBC” went up. People appear to look to the media noise for guidance regarding their financial portfolios. But what is an investor to do when one day the media noise says to sell, and the next day, investors are told to buy?
This is a study of Google searches for “CNBC” compared with S&P 500 Index performance. The blue line represents the S&P 500 Index and the red line represents Google searches. Do you see a pattern? There’s a correlation between poor market performance and CNBC searches.
Past performance does not guarantee future results. See below for index descriptions. For illustrative purposes only. Indices are unmanaged and not available for direct investment.
Source: Google Trends/Factset, 12/21
Here’s the real news: Short-term trading and reacting to market noise—sorry, I mean “news”—has been a loser’s game, which has often caused panicked selling or euphoric buying at the wrong times. Ignoring the media noise and buying fractional ownership in a broad basket of great companies has been a phenomenal wealth builder over time for disciplined long-term investors.
The headlines above are important reminders of the futility of trying to outsmart the market based on headline news.
“The problem is that humans are unreliable decision makers; their judgments are strongly influenced by irrelevant factors, such as their current mood, the time since their last meal, and the weather. Whenever there is judgment, there is noise and probably a lot more than you think.”
We did experience a painful decline in the last month of 2018 before the markets took a sharp (and unexpected) pivot on a hot, but very bumpy, upward run. In fact, the S&P 500 has delivered its best first half of the year performance in more than 20 years!
With that in mind, we should expect to be surprised again, either on the upside or the downside, and we should always expect and be prepared for a downturn. Being prepared means knowing that emergency money is on hand in safe and stable locations, near-term goals are properly funded with investments that will deliver when needed, and if you’re at or near retirement, you have enough bonds and fixed income investments in your portfolios to see you through bad stock market times (see my recent blog post, “Theory vs. Reality: The Retirement Planning Bucket Strategy”).
Although the past does not determine the future with any degree of certainty, history has demonstrated that stock portfolios tend to double in value every 10-15 years, despite having to override recessions, wars, political swings, and many other crises.
This acceptance of near-term volatility to earn long-term rewards is a key concept in our “plan for the best, prepare for the worst” investment and financial planning philosophy.
SOURCES:
“Stocks on Track for Worst December Since The Great Depression” (CNN, December 18, 2018)
“The Best January in 30 Years Could Mean Good Things for 2019” (CNBC, January 31, 2019)