13 hours ago
The media and your money — a knee-jerk response to bad news leads to bad investments
Warren Ingram explains why making money moves based on headlines is not a good idea for any investor.
I believe we need to start a conversation about the daily – or hourly – media and managing our money, and this column is a good platform to do it.
It is not useful for private investors to consume large amounts of daily media. Great investment decisions typically focus on periods that exceed five years. Reading daily or hourly media feeds about US President Donald Trump's latest comments or endless forecasts regarding the end of the South African government of national unity is neither helpful for your sanity nor for making rational investment decisions.
Unfortunately, the headline writers at some of South Africa's largest online media publications are solely interested in your views or engagements – your financial or mental wellbeing is not of concern to them. Therefore, you need to protect yourself and use the right information to make the best decisions possible.
Many, if not most, people don't read long articles online – they just scan the headlines. This is unfortunate because the nuances critical to our understanding of issues are not found in a headline or social media post. They must be explained and developed in a well-crafted article or column.
When we see a headline that screams 'Budget crisis might prompt new elections', we are likely to have an emotional response. The person who wrote the headline does not care if our emotional response leads us to sell all our shares in anticipation of the end of the world; they merely wish to provoke us.
Remember, the headline writer's objective is not to inform and provide context; they simply seek your view or engagement. Headline writers are sometimes at odds with the journalist who took the time to understand the issues and compose an informative piece filled with context. The commercial realities of modern media and our inherent laziness as readers mean that headline writers frequently prevail and good journalism suffers.
Change your timeline
If the stock market were to crash tomorrow, a sensible headline would be: 'Don't panic as markets drop for the 25th time this decade.' However, the more likely headline will be: 'Blood on Wall Street.' I know which one is going to get more views, and I also know which one is trash.
When you read a social media post or a WhatsApp message that makes you feel concerned, take a breath and ask yourself: 'Will this matter in 12 months from now?' If it will not matter in a year, stop reading the information and focus on something else.
However, if the information might still matter in a year, consider what action you can take to benefit from the information. For example, will selling all your shares lead to a guaranteed profit? Consider how well the local and global stock markets have performed over five, 10, 15 and 20 years despite all the headlines telling us that the end of the world is near.
Responding to bad news with a knee-jerk reaction almost always leads to losses in the long term. Over a few months, you might avoid some volatility, but well-structured investments tend to recover from short-term shocks. If you are not invested because you sold in a panic, you will not participate in the recovery.
Context matters and so does a depth of understanding
If you aim to achieve financial freedom through a combination of good saving habits and sensible investment decisions, you need to filter nonsense from facts.
There is no value in a headline. The value lies in long-form analysis, which provides a depth and breadth of information conveyed in hundreds of words, not in 140 characters. Good books written by experienced authors will be your best source of rational investment information. Few people can remain calm in a storm.
The best protection against irrational behaviour is for you to prepare yourself for bad days before you start investing. You will face periods where your investments might lose a third of their value, as this is normal for the stock market. If you can ride out the downturns without selling, you give yourself the best chance of achieving more capital growth than your peers because they were not prepared for the bad times.
Investing is always uncertain, and the future is unpredictable. The aim of an investor is not to get certainty – the objective is to grow your capital. The best way to grow your money is to buy assets when they are cheap and hold them for a long time until they pay great dividends or generate capital growth.
Unsurprisingly, great assets are not always available at a low price, but every few years the market drops, people panic and then you can buy at a good price. The skill is to buy when everyone else is uncertain, and that is not easy. Ignoring the headlines and WhatsApps is a great way to start. DM
This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.
