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Perhaps owing to the generally sad state of financial literacy, the financial media concentrates on fear-based stories and headlines.
After all, their main business is selling advertising. The price they command for ads, of course, is dependent upon the number of viewers. The more eyeballs, the higher the ad prices. This reality often conflicts with providing accurate reporting and leads to over emphasizing fear-based events of the day while under reporting other matters.
Focus on Facts
In order to be a successful long-term investor you have to change the way you look at the financial media and their messages. The media tends to replace evidence-based facts with dramatic anecdotes. Facts simply don’t fit into the news cycle and just get in the way. The motto “If it bleeds, it leads” drives the media in much of their reporting. If you want to achieve your most important future financial goals you have to zoom out and look at the broader view instead of magnifying the events of today.
Narratives about why the markets go up and down generally follow a familiar pattern, to wit: the only way to make money in the markets is to successfully predict when to be in, and when to get out. Of course, the financial press is happy to roll out various “experts” from the product pushing Wall Street firms with their forecasts de jour to support their narrative. The problem is, there’s scant evidence of anyone being able to predict the markets, even though many try.
You Can’t Control the Market
The media sometimes find receptivity for their message because investment portfolios with global diversification aren’t immune to sharp market pullbacks. It’s important to remember that a well-diversified portfolio is designed to support long-term objectives rather than current needs. You can’t control the markets but you can control how you react to short-term market volatility. The key is to expect market volatility so that when it inevitably arrives you aren’t surprised. David Booth of Dimensional says, "you can be disappointed but you can’t be surprised."
We all crave certainty in our financial lives but certainty is a fairy tale because it doesn’t exist in real life. Instead, our role as a trusted financial advisor is to provide proper context.
It’s common for our brains to play tricks on us. We see a series of market down (or up) days and our brains extrapolate this into a pattern. These events can easily become an anchor upon which we then measure our prosperity. Financial prosperity is first a state of mind before it becomes a state of being. Start there.
Related: Trade-Offs, Risk and Uncertainty