Recent market reactions to the global Coronavirus situation has brought a couple of things to mind…
Burt Peake, Jr. is a Wealth Advisor with over 30 years of experience working with Knoxvillians. He was born and raised in Asheville, NC. His favorite hobby is fly-fishing in the Smokies. Burt writes about retirement planning, financial planning, estate planning, and investment management.
First is remembering that the news outlets that provide our news on a daily basis, are in business to make money.
How do they make money? They sell advertising! Therefore, it is important for them to get you to sit down and watch the TV news through several commercials. Same with listening to the radio. On the news websites there is advertising as well. If you still read the newspaper, you know the ads are scattered throughout the pages. Statistics are kept on TV viewership, radio listener-ship, how many “clicks” a story or website receive, and newspaper circulation. The more of any of these things, the more that medium can charge for their advertising. Makes sense, right?
So maybe all of these news sources are guilty to some degree of sensationalizing the news.
It happens all the time with news like the Coronavirus, political stories, the weather, and many other topics. It isn’t that these things aren’t news or even a bad situation, it is just that many times they are sensationalized for the financial good of the news medium reporting it. This is just a good thing to keep in mind as you digest the news. Things are rarely as bad or as good as the media might lead you to believe.
The second thing it brought to mind, was a holiday party I attended this past Christmas.
I met a nice couple that I did not know, and the usual small talk began. As is almost always the case, conversation turned to what we do for a living. He was a retired dentist and she had been an accountant for a large manufacturer. When I told them that I am a wealth advisor, he scarcely let those words out of my mouth before proclaiming that he had lost a certain part of his anatomy (that upon which he sits) in the market back in 2008. Startled, I asked him how that happened. He said “Don’t you remember 2008???!!! Everything was down and I lost 30%!” I asked him again “But, how did you lose 30%?” He told me, “I got out and lost my donkey”. So, I nodded and turned to his wife and said “Ann*, if you were walking through the mall and approached your favorite store right as they were pasting a big sign in the window that said LIMITED TIME ONLY – ALL MERCHANDISE 50% OFF, would you go in and shop, or would you run the other way, go home and get rid of everything you had previously bought at that store?” Ann* told me “I’m going shopping!” I smiled at her and turned back to Andrew*.
“Andrew*” I said, “Back in 2008, how much did you lose on your house?”
“What do you mean?”, he said. I told him that in 2008 home prices fell almost 18%. “Did you dump the house too?” He told me he held it because he lived there, knew the value was down but he knew it would come back. I told him that much of what he lost in stocks by selling he would have regained over the next 19 months. He also told me he did not ever get back into the market with his investment money. “Was your advisor good with that?” I asked. He told me he did his own investing. So, he locked in a loss and then followed that with missing out on a historically profitable next ten years in the markets. What was true of his home value was also true of his investment portfolio, he just let emotions govern decisions.
Many people are just like Andrew*…
It can be a very valuable relationship to have an investment advisor who helps you make smart decisions with your money, looking objectively at what is driving the markets, and helping to keep you from doing the wrong thing at the wrong time.
*Names have been changed
Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by TVAMP), will be profitable or equal any historical performance level(s).