Americans love drama. The four most-watched TV shows in 2018 were all dramas, and of the five top-grossing movies of 2017, only one was a comedy.
In Washington, D.C., political drama is a daily staple. Many of our most successful politicians are masters of the dramatic. Anything to get a headline, right? Because headlines get our attention.
News organizations know this, of course. Their product is real-life drama, because it gets your attention, and eyeballs sell advertising.
But this can create problems for investors. How do you know what to pay attention to? Sometimes political events have real implications for the economy and our investments. At other times, political events have no impact at all.
Recently, I was on a conference call with other financial advisors. Several had clients that had panicked after seeing certain headlines and called their advisors to demand that everything be sold.
In retrospect, it’s easy to see that they reacted unnecessarily because the market has continued to advance. So how will you know when you really should be concerned?
To me, the answer is simple. I ask myself if the information in the headline is true—because that’s not always the case.
Let me give you an example. On November 13, a headline in the Los Angeles Times read, “CNN Sues Trump.” Is it true? Well, kind of. The suit is actually against the administration for the purpose of reinstating a reporter’s White House credentials. But that doesn’t grab people’s attention the way that “CNN Sues Trump” does.
It’s a subtle difference, but it matters. And sometimes the difference is more pronounced. I have seen headlines that conveyed the exact opposite meaning of the story. So my first question—“is it true?”—is pretty important.
But assuming the information is true, is it something that is likely to impact the economy or my investments?
If the headline is about the Mueller investigation, does it have anything to do with the economy? Maybe a tiny bit, but not to any meaningful extent. As a citizen of our democracy, I might care. But as an investor, I don’t care at all.
If the headline is about a tax cut or tariffs, now we’re talking about things that have potential economic impact—and attention must be paid.
But the next question is, what is the impact? And if it’s possibly significant, is it immediate?
These last two are pretty difficult to figure out. But always remember that the headline writers’ job is to scare you. Give them some facts and just watch them make those facts look worse than they are! It’s an incredible talent because they have to do it while also telling the truth. If they really told the truth all the time, many headlines would have to come with a disclaimer, something like, “This isn’t really a big deal.”
My advice then is simple.
- In general, don’t react to headlines. They are deliberately designed to instill fear.
- If it seems like something you really should pay attention to, refer back to number 1.
- If, after checking again, you really think it’s something to pay attention to, then ask yourself, how likely is it to be big enough to change a $20 trillion economy?
If you follow these simple guidelines, I think you will find that most headlines—and I really mean almost all—can be ignored. The bottom line is that I wouldn’t make an investment because of a headline, so I am also unlikely to sell an investment because of one.
Hal Masover is a Chartered Retirement Planning Counselor and a registered representative. His firm, Investment Insights, Inc is at 508 N 2nd Street, Suite 203, Fairfield, IA 52556. Securities offered through, Cambridge Investment Research, Inc, a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Investment Insights, Inc & Cambridge are not affiliated. Comments and questions can be sent to hal.masover@emailsri.com. These are the opinions of Hal Masover and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. Investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including total loss of principal. Past performance is no guarantee of future results. Indices mentioned are unmanaged and cannot be invested in directly.