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The Danger of Financial Headline News

As a financial planner I often get asked ‘So, what do you think of this market?’ I often give the questioner a very unsatisfying answer because I usually respond with ‘I don’t think much about it’ or ‘Before I give you my opinion you should realize my opinion is utterly useless in making any investment decisions.’ Why do I provide answers like this? Well, because both answers are true. Let me explain.

First, much of what drives opinions about the market is the headline financial news. Be it a business channel on television or financial news web site, the headline news is meant to draw your attention- not to inform. And this headline news serves no positive purpose in making individual investment decisions. Let’s look at a headline that I’m looking at today on a financial news web site. In the main title is the word ‘fear’ and in the byline are the words ‘crisis’ and the term ‘lock horns’. Are you scared yet? This sounds like an article on a new Friday the 13th movie!

In actuality it is a story about a possible shutdown of the Minnesota state government. The reality of this story is that while it may have real impacts for the citizens of Minnesota, it will probably have no impact on the markets or many people outside of Minnesota. Now, this is just one example of how headline news captures our attention with scary-sounding words. In reality, the web site is trying to gain attention for their advertisers.

Second, what about my opinions on the market or the economy? I am a financial planner after all and many people do value my opinion on a range of topics. The problem with expressing an opinion on these topics is that you have to be right all the time. You cannot just get it right once or twice. There are too many ‘professionals’ who go on television or get quoted in an article giving their ‘expert’ opinion when in reality they have absolutely no idea what is going to happen. What is worse, the financial press never holds these people accountable. Every December or January you always see articles that express predictions for the coming year. You hardly EVER see articles reviewing how those predictions turned out. (The sad truth is that more of them are wrong than right.)

Here is a specific reason why I do not even trust my own opinion about the markets: during the downturn of 2008-2009 there were several moments where I thought we had hit the bottom. I did not act on my ‘thoughts’ as I know better, but I really thought we had turned the corner on several occassions. Well, I was wrong more than once during that period and I sure am glad I did not ‘do something’ about my opinions.

The reality is that the market is smarter than all of us. The reason is simple: the market reflects the totality of opinions of all market participants. Trying to out guess the market is a loser’s game. I’d prefer to develop a discplined investment strategy that captures market returns and stick to it. My recommendation: turn off the financial news channel/financial web site and turn to something more interesting like a sporting event or a cooking channel.

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