Financial News Misleads Again

Yesterday, the stock market had a rough day and, as usual, the financial news blared about that and the falling interest rates too. The Wall Street Journal Headlines were “Stocks, Bond Yields Fall on Global Economic Concerns” and “Twin Troubles Strike the Bond Market“. It all sounds horrible. Except it wasn’t. It was a great day for bond investors.

For example, here’s a chart for the week of the State Street Global Advisors S&P 500 index ETF (red) and Vanguard’s Long-term Government Bond index ETF (blue). This bond category had a spectacular Friday and a terrific week, but the Friday headline was “Twin Troubles Strike the Bond Market.” In fact, have you ever seen a headline touting a great day for bond investors? I haven’t.

Emotions and News

Psychologists say that people are far more sensitive to fear than other emotions, and news outlets use this to their advantage.

The news tends to focus on the negative … because negative events are much more salient for us.… To the extent that news producers are trying to cater to the viewers, they are going to focus more on stories … that create some threat.

Dr. Art Markman and Dr. Bob Duke, Two Guys on Your Head, 24-Hour News Cycle

However, emotions and fear have no place in investments. Instead, investment decisions should be based on data and objective analysis. When emotions are allowed to color or control our investment choices, we can do ourselves great harm, as discussed here.

Read Books, Not News

In our view, closely following financial news can lead to emotional financial mistakes. This article provides tips on avoiding emotions, but one of the easiest is simply avoiding financial news. A better alternative to news is to read books on investing. Here are some great titles:

• A Random Walk Down Wall Street by Burton Malkiel
• The Little Book of Common Sense Investing by John Bogle
• How to Think About Money by Jonathan Clements

Not only will you be better informed, you’ll sleep better and make better financial choices.