You may recall from a previous article, Our Very Latest Opinion on Markets, that the investment strategy we create for you is founded on the premise that we don’t know what’s going to happen next. We don’t speculate on stocks and shares, and we don’t try to ‘time’ markets by selecting when to buy and sell.
We are what is known as ‘long only’ value investors, and we eschew the use of hedge funds, structured products and geared funds that make use of such activities. We have a clear strategy, in which we agree the amount of cash you are likely to need over a period of time, before investing the remainder in good quality assets without dwelling on current market conditions.
The problem is that our clients don’t always play the same game. Instead, they get distracted by the news, with all of its negative connotations. Companies failing, dramatic headlines about the faltering economy, government paralysis – it’s the stuff of journalistic dreams!
What better environment to sell news could there be?
But it is well known in the news business that it is bad news that sells. Whilst the consumers of news often ask for more 'good news' items in their daily content, the news creators understand that when they deliver it, those same consumers lose interest. For this reason there is a serious imbalance in the number of 'bad news' stories in the media to those offering 'good news'.
Furthermore, the way that news is presented is also heavily skewed to emphasise the negative. As an example, read this extract from the internet:
Here's the headline from a recent press release:
"U.S. Industrial Manufacturers Expect Lower Growth Rates for the Next 12 Months." Hmmm, that doesn't sound so good, does it? But when you drill down into the actual text of the press release (which is publicizing a new study), what's really going on, and what could just as easily have been trumpeted in the headline, is this:
"U.S. Industrial Manufacturers Expect Growth Rate of 5.7% for the Next 12 Months."
It's curious that (the authors) chose to accentuate the negative in the headline rather than the positive. True, there is a downside to the story -- growth projections are down a few percentage points from a previous report -- but why lead with the bad news, which really isn't "news" at all? Of course, the answer is obvious: Bad news is more likely to attract a casual reader's eye than good news. It's a secret journalists have known for years....".
You can read the full article here.
Studies have suggested that this emphasis on bad news can affect the thinking of whole societies as well the individuals who live within them.
That's why our consistent advice has been to ignore the news and focus on what you can control as the way to achieve your goals. But some of our clients let their emotions take over. Instead of sticking to the strategy we’ve agreed, they try to second-guess by short-changing the strategy in some way.
We understand this, it’s called ‘human nature.’ It’s hard to let go of your emotions in these circumstances. We’ve noticed that some people find it much easier to follow our advice when they made 20% return last year. But when things turn down, suddenly they invent their own new Plan based on a gut response to events.
Over recent years, the field of 'behavioural economics' has helped to explain why people tend to make irrational decisions around money. Studies have shown that the emotional impact of suffering a financial loss is typically double the effect of achieving an equivalent gain. Ultimately our behaviour is driven by our feelings, and our innate human desire to avoid loss can lead to taking actions that are out of line with the logic of a situation. When the news around you appears overwhelmingly negative it's easy to become worried into false action.
At such times, it helps to have a guide and mentor to help you make good money decisions, as well as a sound process. That's why having an adviser can be so beneficial.
We believe that one of the key strengths of our investment philosophy is the discipline that it applies at difficult times. We believe in our process, but only if you follow it.
If you are consistently following our advice, regularly implementing the changes that we recommend at our periodic meetings, and feel relaxed about your Plan, your finances and your life, congratulations! It’s obviously working and you are experiencing the feelings that come with knowing that you are doing the things necessary to have the highest probability of achieving your goals.
If not, and you’re one of the people trying to ‘second-guess’ our advice, we don’t blame you. We fully understand. But we would respectfully suggest that your results will improve if you ignore the news and apply that same discipline to your own Plan.
There are no guarantees in life. We still don’t know what’s going to happen next. But what we do know is that regular, consistent actions towards your goal are the way to achieve consistent results.
Make it a habit to turn off the source of financial negativity in your life, whether it be TV, internet, social media or the 'expert' at the pub. Focus on your goals and take the long view. The world isn't about to end.
If you are worried that you might be sabotaging your own Plan that we have carefully created for you, or if you have any questions, call us now to agree what we need to do to get back on track. Furthermore, if you know someone else whose life is being torn apart by uncertainty, you could help them by suggesting that we have a conversation. We'll explain how having clear goals based on your values, as well as a disciplined strategy based on your own tailor-made Financial Plan, creates opportunities for success.
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