Bad or sad news! What to do!
A reader asked “How concerned should I be about headline risks?” Concerned? Not a bit! Be aware of bad and sad news as it can rivet our and market attention. For investors, headline risks are stock market reaction or often, overreaction, to news.
The business of media is bad news. We react to bad news more than we respond to good news. For that reason bad news makes headlines and headlines can more stock markets!
Headlines moving stock markets include:
Concerns or criticism of world leaders
War, conflict political clashes
Interest rate moves and FED or bank statements
Currency or foreign exchange moves
Any surprising economic or financial news
Media opinion, spin & churn adds to the ferment!
Because we pay most attention to bad news, we get more of it! Media producers and editors know that bad and sad drama gets and holds our attention. Most of us, most of the time are living excellent lives in wonderful circumstances. Hearing about that seems so boring!
We ignore news without drama or tension. When “something” happens, we pay attention to drama, trauma or excitement! We pass over the good for the awful because we love the drama!
To make a buck, media masters must deliver lots of eyeballs. Eyeballs keep ad funds flowing. Our eager cooperation in this scheme keeps that revenue flowing. And that keeps us well supplied with news of bad events or conflicts.
Stock markets react or overreact to news!
Because we react to news our emotions also show in market action. Enough of us will believe the worst of any news report, especially a report of bad news. That behavior shows in quick market reactions. Most often the strongest response comes from negative news.
In fact, again and again the most likely market response is overreaction. In that sense, we create our our own biggest problem!
Dealing with market responses to news
When markets move on news, stop and think before acting. By doing nothing we come through most news cycles unscathed. There are very few times an investor must act fast to avoid real problems delivered by headlines.
During any major news cycle, watch developments and keep current on events. But remain confident. With very few exceptions quality investments continue to produce well even in crisis.
Always remain aware of the strong emotions that play out during a news event. Superior investors remain calm and stay the course. With few exceptions that approach pays very well in most market reactions. Most often, that leaves you well ahead of those who sold in panic.
Market overreaction delivers opportunity
Exceptional opportunities can develop when markets fall in panic. Before acting we need to measure the market, the event and the market reaction to the news reports. When short-term emotions drive overreactions consider them as exceptional buying opportunities.
When trading action, reaction and emotion, drives the market, stay put, don’t spook. Instead, think like an investor. Superior investors know market overreactions repeat again and again with no end. Events pass and markets always return to making money. You can too!
When to duck and cover!
Two disasters a month is normal.
Working with a worldwide disaster response charity, I learned some amazing things. But two disasters a month was normal! Unfortunate for those involved, month after month, year after year, they keep coming. our world experiences two disasters each month!
They all pass. That can sound crass but we humans learn to pick up and carry on. When talking about the stock market and making money there are no feelings involved. Markets and money, including your money, has no feelings.
But investors do feel. That is a risk. Successful investors manage risk and feelings. Investors know exceptions drive news and market cycles
Normal weather is not news. The exceptions, the unusual and negative events are the ones that get our attention. Media, politicians and salesmen all know this. They grab and keep our attention by presenting the dark side of issues.
Negatives get and keep our attention. We pay little or no attention to good news stories. Both media and politicians want, need and feed off our attention.
Our reactions teach them that the negative, the uncommon or unusual gets attention. So they cry wolf and we bite on the story every time! But not superior investors.
Investor do nothing, absolutely, positively nothing!
Bad news headlines can produce a huge spike in market noise and pundit buzz. That can frighten and confuse you. Being swept up in the negative emotions or bad decisions and actions can cost you.
What is an investor to do? Nothing! Do absolutely positively nothing! Take a mental measurement of the news. Size up the event. Even a devastating local disaster has limited long-lasting market affects. Move only when the event is world-changing. Do nothing for “normal and regular” disasters.
Superior investors act when necessary
Take a mental measurement of an event to consider the effect of a news headline. Act when necessary but do not act until necessary.
An angry executive or politician on a rant, doesn’t count. In most circumstances we should wait for the drama to pass. Like one more summer squall, the market storm soon passes.
Yet, when the event is the next big one, the real big event matters! Then we act! Fast and now! Immediately sell, preserve capital.
For headline warning risks, remember most play out as market overreactions. To play headlines well we must know and acknowledge our emotions. Denying emotions play a part in or behavior or the markets, is foolish. They do, so get to know and control them.
When reactive trading and emotions drive markets, you can choose not to be part of the turmoil. Thinking like an investor protects your portfolio. That avoids the major emotional forces that drive market extremes.
Always do your homework and always think
Doing your homework and thinking give you the best possible defense against market emotions.
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Monitor Markets to Protect Wealth:
Introduction to Monitor Markets to Protect Wealth Lesson 1
4 Indicators muffle noise Lesson 2
4 Market direction drivers Lesson 3
Daily buyer-seller battles Lesson 4
3 Risk or opportunity signals Lesson 5
Look forward with data Lesson 6
5 Star market compass Lesson 7
Check market direction trends Lesson 8
Headline news market risks Lesson 9
Next suggested course:
Effective Investing & Finance Research
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Bryan
White Top Investor
[email protected] WhiteTopInvestor.com
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