Lesson type: Think like an investor
When it comes to your money, no news is good news
What happens when you read one of the following words in the headline of a finance article?
At the very least they cause worry; which can lead to fear; and in the worst case: panic.
One of the most famous quotes from probably our greatest investor of all times is:
“Be fearful when others are greedy, and greedy when others are fearful” – Warren Buffett
But that’s easy for Warren to say. He’s incredibly smart. He’s incredibly patient. He knows it is right, so he can keep his nerve and stick with his strategy. However, when it comes to the average investor it’s a different story.
When markets are calm, we know what we should do. Over the long term markets rise. When there is a correction or a bear market, we’ll buy because we know we’ll look back on it as a great buying opportunity. But then the market drops 10 or 15 or 20 per cent. The headlines tell us it could get worse. And we start to worry, become fearful and panic.
Panic can lead to selling, at just the wrong time. Market falls and corrections are a normal part of the cycle. A market crash is coming. You can be sure of that. It’s just that no one knows when. Have a strategy to deal with it whenever it happens.
The problem with news is that it is skewed to the negative. Why? Negative headlines have a click through rate a massive 63 per cent higher than positive headlines. Bad news sells.
So what can we do to avoid this next time it happens?
Avoid the news. Don’t read the daily financial pages.
I love reading research, studies and reports and listening to podcasts. But daily market news, no thanks.
Dave Rae is a director, owner, and Certified Financial Planner at DPR Accountants and Advisers. He is a self-managed superannuation fund specialist adviser and works with clients to explore their goals and help them to build financial roadmaps to reach these. Dave co-founded DPR Accountants and Advisers in 2014 and has over 15 years’ experience in the financial services industry. He features on No More Practice’s The Investment Series 3 – The Philosophy Series where he provides financial advice to his client and helps him to understand his financial decision-making preferences.
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