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Today we live in a swirling sea of information. The media, in all its forms, subjects us to a constant barrage of articles, headlines, posts, tips, videos, ads, emails, and so on (and often unsolicited). This constant stream of information plays a significant role in our decision-making process, often influencing the choices we make in many aspects of our lives. It should be no surprise; this includes our investment decisions.
In the investment world, we endure a constant stream of news, analyses, and predictions covering everything from market trends, earnings reports, and economic indicators. This endless stream of information can prove to be a double-edged sword. It can provide us with the information we need to make informed decisions, but it can also be a distraction, alter our perspectives, cause indecision, and prompt us to deviate from long-term plans. The media has a profound influence on our decision-making process, so it’s important to know how to filter through the noise.
The Good
Investing should be viewed as a long-term process. Fortunately, there are many resources available that provide valuable insight for long-term investing. For anyone looking, there are news articles, blog posts, social media posts, and more, that discuss beneficial topics for the long-term investor. This can include topics such as proper asset allocation and diversification, long-term investment strategy, tax-related issues, investor psychology, and more. This information can be used as the backbone for developing a sound investment plan.
The Bad
The media's role in investor behavior is not always beneficial. The media tends to focus on short-term events and trends, often overlooking the long-term fundamentals. It tends to amplify market volatility, exaggerating the significance of minor fluctuations which stirs up emotions of fear and greed. Moreover, information is often contradictory with one “expert” making bold claims and another taking the opposing point of view. Lastly, the media can also be prone to biases and inaccuracies. Put it all together and we call this “noise.”
Consequences of Media Influence
Media influence can lead to herd mentality, where investors blindly follow the crowd, ignoring their own analysis, judgment, and goals. It can also provoke an overreaction, causing investors to buy or sell impulsively based on sensational news or unfounded rumors. In the end, this will likely lead to indecision, confusion, bouncing from one idea to the next, and hurting your long-term investment success.
What is Media Detachment
Media detachment is the practice of consciously distancing yourself from the incessant flow of information. It does not imply a complete disconnect from the media but instead advocates for a reasonable and discriminating consumption of information. We don’t want to be left in the dark, but we want to be educated and informed on the topics unique to our investment needs and situation.
Media Detachment Strategy
If your investment time horizon is long-term, but your media focus is short-term, there is a misalignment. Watching every twist and turn of the stock market, placing bets on the latest Apple earnings report, and researching the next hot sector, do little to help your long-term investment plans and will only leave you in a cloud of uncertainty as you second-guess your decisions.
We know the information we consume can shape our perspectives and lead to counterproductive behavior, so what do we do?
First off, determine what your investment objectives are. How will you know what information to seek and what information to avoid if you don’t have a plan? If you don’t have an investment plan, you can read my blog post here about making one.
Once you know your investment objectives, be proactive about the information you seek. If you’re a long-term investor focusing on retirement, that should be the filter you use when following the media. The focus should be on long-term investment principles, proper diversification, tax-efficient investing, the pros and cons of the various retirement accounts available to you, and any tax or legislative changes that might impact your investment and/or retirement plans.
Seek reputable sources rather than passively consuming media. Don’t accept media information at face value, but scrutinize it for biases, inaccuracies, and exaggerations and, most importantly, decide if it pertains to you and your goals.
The media can trigger emotional reactions. If you are prone to making decisions based on sensational stories, do your best to avoid these triggers.
Consider limiting your media consumption. Set specific times for consuming media information and avoid constantly checking the news or social media feeds.
Consider Working with a Professional
Instead of letting the media influence your investment decisions, consider working with a financial planner. Advisors offer tailored advice based on a deep understanding of your financial goals, risk tolerance, and life circumstances, which is beyond the capabilities of generic online research and the media. And, not only can they help you develop a comprehensive plan, they are adept at knowing when it’s time to make adjustments based on personal circumstances, not on breaking news that will be forgotten by day’s end.
Conclusion
By adopting a media filter, you can greatly improve the odds of achieving financial success in the markets. Reducing noise and focusing on what’s important can help investors see the bigger picture, make smarter investment decisions, and stay on track. However, if you struggle with the media’s influence over your financial decisions, especially during periods of market volatility, consult with an advisor who can provide you with recommendations unique to your situation, and stay the course regardless of the latest news feed.
Tad Jakes, CFP®, EA, ECA