Why reading this news might be hurting your investments
Most of us start our days in a similar way…with coffee or tea and the news. We tell ourselves that it’s good to be informed about what’s going on in the world and we read on.
How would that hurt your investments?
News reporting has undergone a seismic shift in the age of the internet. Gone are the days of opening your front door in your slippers to get your daily newspaper (what are enterprising young kids going to do for work now?) and sitting down to skim the headlines. Now we pick up our phones, scroll through our favorite news websites and social media pages, and then get on with our days.
The fundamental problem is the way the business model for journalists has changed.
Much has been said about the “attention economy” and how companies across the internet are competing for your eyes when you are using your device. Advertisers pay for clicks, watch time, engagement, and are in general trying to stand out as much as possible to increase their revenue. Everyone is crying out for your attention because your attention is what keeps their businesses going.
Enter the “viral headline”.
News agencies have known for a while what sells. They understand human psychology and curate their headlines to get as much attention as they can, to draw you in to profit off of you. Newspapers were the same, as an engaging headline made you more likely to shell out your dollar to buy the paper. The issue is that what sells is most often anxiety, uncertainty, or just plain fear.
Humans can’t resist it… fear makes us stand up and pay attention. Our basic survival instinct has been exploited by politicians and news agencies for years in an attempt to get us to listen. Now it’s being monetized, as promoting scary sounding headlines leads to more clicks, watch time, read time, and ultimately, revenue.
In fact I just did it to you. See the title of this blog post? Were you not curious as to what I was going to say in this piece? I used uncertainty, anxiety and fear about the future to reel you in like a fish. (Sorry about that, I promise to make it up to you!)
News now has a profit motive to be negative. Negativity increases engagement. So, thinking critically about (especially) negative news is always important when it comes to thinking about your investment decisions. We at Piccoli Wealth Management believe in a long-term investing horizon to bring the most value to your portfolio. If you think about it, we are the ultimate optimists. At our core we believe that if we pick the right investments and are patient, rational, and optimistic we can grow our wealth long term. Conversely, studies have shown that panic-selling and then re-entering the market produces lower long term gains for investors. Overreacting to negative news goes against our most fundamental investment beliefs.
This isn’t to say that we shouldn’t be prepared for market downturns or major economic forces that alter our investment choices. These things will almost certainly continue to happen. But if we zoom out it becomes easier to see our long term plan and stick to it.
So next time you come across an attractive and negative headline and story, in either the world or financial news, take a second to step back and think critically.
We think it pays to be an optimist.
James