Focus Away from the News “Of the Day”Advice to the Advisor
Is following the financial media the best way for your investors to stay informed? Do all those news broadcasts about stock quotes and stories of the day help investors make wise decisions? The answer, at least in the view of Jay Mooreland, author of The Emotional Investor, is a resounding “NO!”
Think about the material presented by the typical financial news program, Mooreland told our Sheaff Brock investment team. Stock quotes? They are “of the day.” News stories? “Of the day.” But as an investor, he stresses, the very last place you want to put your focus is on matters “of the day.”
Ironically, for today’s investor, there’s no problem staying “informed.” In fact, we are all under a constant barrage of information from TV, radio, cell phone, email, magazines and newspapers. In fact, there’s so much “information” that it’s becoming harder and harder to:
- distinguish fact from opinion
- understand possible conflicts of interest on the part of those presenting that information
- “mine” nuggets of knowledge relevant to our own decision-making
Speaking of mining, Mooreland added, even the monthly investment statements (which FINRA requires all investment companies to provide for their clients) can serve as “minefields,” misdirecting our thoughts towards short-term thinking and irrelevant comparisons. After all, Mooreland asks, does it really matter if this month your portfolio lagged behind the S&P 500 Index? The index is a general measurement tool, not tailored to your risk level and long term investment strategy.
Back in 2011, then-Chairman of the Federal Deposit Insurance Corporation Sheila Bair addressed the Harvard Law School Form on Corporate Governance & Financial Regulation on the challenge post by “short-termism.” Investors systematically over-value short-term payoffs, while passing up investment opportunities that could leave them much better off in the longer term, she observed. In her talk, Bair made special note of the fact that the holding period of equity shares trade on the New York Stock Exchange had fallen from seven years in 1940 to just seven months by 2007.
“While the mathematical side of our brain makes careful calculations of risk and reward over time, the more primal, emotional parts of our brain tend to focus on the here and now,” Bair said, hitting on the central theme of Jay Mooreland’s book, The Emotional Investor.
To counteract that mindset with investors, Mooreland shares specific steps for controlling fear-based financial decision-making and empowering the rational mind to rule over impulse thinking. “For now,” he concluded, “here’s the message I wish to relay:
“Remember—the #1 role of media is to cause concern so that viewers, readers and listeners feel compelled to come back. But the #1 role investors need to play is to remain focused on their own long-term investment plan!”