By Priya Malani, Co-Founder, Stash Wealth
I was personally compelled to write this post when I stumbled upon CNBC.com the other day (August 10th 2016) and saw the above picture. I rarely pay attention to that site…yes, I am the person running a firm that manages your money telling you and I’m telling you that I ignore most market news and headlines. Does that worry you?
It’s not your fault. You’ve been taught to think that paying attention to the news is the key to investing success. I’m sure that many people think that we must have CNBC on at the office all day long – keeping track of every move the market makes, listening to every story + headline, following stock-tickers to uncover trends and patterns. Not even close! We don’t listen to CNBC at the office, right now we’re listening to LoFi on Spotify. (Everyone takes a turn picking a playlist–singer/songwriter is another favorite.)
When I started my career on Wall Street back in 2003, I was just like everyone else: my perception of successful investing involved complicated spreadsheets and diligent tracking of the stock market. I got REALLY lucky though and was hired to work on a team led by a financial advisor who had been with the firm for 43 years. He’d seen a lot, and what I’m about to share with you are a few of the most critical investing lessons he taught me.
CNBC Destroys Wealth
Okay, that sounds a bit dramatic, but I’m not kidding – the reason why is simple. The biggest downfall of the individual investor is emotional investing. When you’re a novice and not prepared to stomach market fluctuation, watching your net worth rise and fall day-in-and-day-out can get pretty scary and result in some not-so-sound investing decisions. Some people hire a professional simply to prevent them from making emotional investing decisions. Sometimes, the most powerful thing we can do for a client is nothing.
ALL LONG-TERM INVESTORS WANT SHORT-TERM RESULTS
Research and financial news are meant to do one thing… sell advertising! The more sensational the stories are, the longer you stay tuned-in and in front of their advertisers – they want that. No different than any other type of news programming, ratings are highest when there is a “disaster” or dramatic story that they can build hype around. Advertisers pay big for those slots.
CNBC flip-flops constantly. If you watch for just 30 minutes, you’d be left paralyzed. At moments you’ll be convinced to BUY NOW, heck they may even tell you what to buy. Often advertising budgets help shape those recommendations. But no sooner than you buy, the next story will tell you how the world is going to sh*t and you should sell everything. (Case in point, see image above.)
Set It And Forget It
Here’s a fun fact. Want to know which account is usually a DIY investor’s best performing account??? Their 401(k)! The reason cited in this Fidelity study was that most of us forget our 401(k) password! So once we set it up, we never fiddle with it. Left alone the ride out the ups and downs of the market, the portfolio ends up doing better than any other investment account. Funny, right? The take-away, if you leave your portfolio alone, it’s will do better than if you try tinker with it. Our motto is, “buy right and sit tight!” We advise our clients NOT to look at their investment accounts – as long as they are diversified – there’s nothing you need to do outside of the occasional rebalance (more to come on rebalancing down the road). Hopefully, this tidbit makes you feel better if you aren’t logging in to check on your 401(k) all the time.
No On Has a Crystal Ball
Professional money managers DO NOT know what the markets are going to do. In fact, studies show that 75% of the time, professional investors underperform a diversified portfolio. When I explained to my boss that I had created a spreadsheet to track the market, he invited me into his office one evening and explained to me that the stock market is forward-looking. It’s all about what the future holds for the value and growth of companies, countries etc. However all the research Wall Street produces is backward-looking. After a company reports bad earnings, analysts then come out and “downgrade the company. After the stock has already dropped dramatically, they tell you that you shouldn’t be holding the stock anymore. In reality, it may be a great time to buy the stock after it has been beaten up and is on sale!
Even more shocking, over the past 20 years a lot of regulation has helped make sure analysts aren’t committing fraud or cheating the average investor (which was a regular occurrence once upon a time). But it still doesn’t meant that their research is accurate or predictive. In fact, most industry insiders believe the entire research and market-commentary is pretty much worthless.
So what’s the average H.E.N.R.Y.™ to do? Don’t track stocks on your iPhone, don’t feel compelled to read stock research and above all, recognize the news for what it is – hype. It’s about getting you to react. Stop letting the media’s sensationalized financial news affect your behavior. Investing is an emotional experience as it is (you work really hard for your money!), but allowing emotion to dictate investment decisions is a sure way to end up with less in the end!
To read more articles on investing like a H.E.N.R.Y.™ click here.