It’s true that being informed about the financial world can help make you a better investor.
It’s also true that seeing what’s happening in the market right-this-minute and then finding out what to make of it from an expert can be intellectually interesting.
The problem comes when you decide to act on the latest financial news. Financial pundits, despite their Ivy League credentials and willingness to give you their unfiltered opinion, are notoriously wrong.
Putting too much faith in their perspectives and predictions can cause you unnecessary anxiety. And if you do act on financial pundits’ opinions, you may even cause yourself lasting damage when it comes to your long-term investment strategy.
The Soothsayers Who Are Consistently Wrong
At the very end of 2017, Ruchir Sharma, chief global strategist at Morgan Stanley and New York Times contributor, compiled a list of the financial projections that the majority of respected experts had missed for the previous year. These were predictions about inflation, currencies, economic growth, and various market performance.
In most cases, they weren’t just off by a little. They were simply dead wrong.
Sharma writes that the forecasting misses of 2017 reflect mistakes humans have been consistently making ever since we started thinking about the future.
“Every forecaster knows that economies rise and fall constantly, oscillating around a long-term trend line. Yet forecasts typically extrapolate current trends in a straight line, so the visions of tomorrow closely resembles today, often implausibly so.”
In January 2017 the experts thought the year would turn out to look a lot like 2016. Instead, the world economy had its best twelve months since 2008. Investors who followed the so-called “smart money” instead of pursuing a broadly diverse strategy, missed out on those gains.
Financial News As Entertainment
While the financial media do bring you news of the latest market developments, that’s not their number one priority. So what is it?
First and foremost, they exist to sell advertising. That’s why the on-air people are so attractive, why their stories have exciting promos, and why they save the most interesting items for the end of the show.
As a prudent investor, always remember that the financial media’s primary objective is to entertain you with controversy so you’ll stay engaged long enough to: a) sell you something; b) sell your perceived attention to their advertisers or c) both.
Watching or reading the latest from the financial media can give you the temporary sensation that you’re smarter or better-informed because they assign causes to the various movements of the market. But just as nobody knows how stocks will behave tomorrow, neither do they know exactly why they did what they did today.
The endless opinions and predictions flying around in a 24-hour news cycle mean you can always find one that either aligns with or contradicts your own. However the actual value of finding an opinion that happens to confirm your own is basically zero. This is a behavioral challenge we all face as investors known as Confirmation Bias.
Expect The Unexpected
Since even the smartest financial experts can’t reliably and accurately tell you if the market will go up or down tomorrow, it’s best to prepare for both eventualities. Having a personalized plan designed to achieve your financial goals within your timeline is a more effective approach than finding someone in the financial news media who can predict the future for you.
So, talk to your trusted financial advisor about a long-term investment strategy engineered to help you reap the potential benefits of rising markets while taking into account the risk of volatility. If you advisor subscribes to the same tactics as I have described, then do yourself a favor and look for someone new.
We can help you!