Yes, it's true. I slept with Charlie Rose. What a scandalous sounding headline! The truth of the matter is we occupied seats next to each other on the red eye flight from Seattle on Friday night. While there was very little to do at that late hour-everyone was sound asleep as the jet made its way across the country. So technically speaking, my statement is true. Headlines like these are meant to mislead or fuel thinking that spurs the imagination. We witness this frequently in the press and the financial media is no exception. Statements like "Dow collapses on fears of European Woes", "Dow Soars Ahead of Fed Meeting", "Shorts are Piling Into These Stocks. Should You Be Worried?" or "Is Retail Spending on the Ropes?" All intended to move the reader to act with an emotional response.
When it comes to rational and sound investing, headlines can fuel thinking and worse, actions, that are not in alignment with your long term goals. As "rational" humans, we believe we have the ability to reason and come up with sound conclusions. If a story is published in a paper or magazine we trust, or a story is reported on a website or on the radio, we believe it is factual-not opinion, and therefore it is only rational that we act. For example, in the midst of the Recession, we were bombarded daily by the media reporting all the negative news without a glimmer of hope. It was an ongoing deluge of depressing stories of the economy. Long term investors got scared and dumped their equity holdings realizing substantial losses! Where were the stories that told consumers that selling out of quality long term investments may not be such a good idea, especially when markets are down and that history has shown us that we do recover and losses are only losses when the asset is sold?
We think we are acting on good information for our own best interest, whereas we might be acting against our interests by following a headline or story that leads you to an unfavorable conclusion. The fact is, the markets are not rational on a day to day basis and therefore trying to divine what's next is typically a losing proposition. The so called "experts" are wrong more than they are right (active mutual fund managers rarely outperform their benchmarks), so what are the chances that you will make the right moves?
When it comes to successful investing, ignore your "instincts" and feelings and focusing on long-term results supported by a sensible investment portfolio that reflects your ability to stay invested, even during difficult times. The reality is markets move on speculation, perception, news, fear, economic data and other factors real or perceived. It is virtually impossible for individuals to consistently know how to find their way through the noise and make timely appropriate decisions. Therefore, ignore the headlines-they can mislead, misguide and send you off thinking all sorts of crazy things.