Investing in the age of 24-hour media

Posted by Northadvisory on February 19, 2020

There’s something empowering about living in this day and age – having the ability, with a few keystrokes or a quiet word to Siri, to access… well, anything.

Whether you want to cook amazing spaghetti marinara, book a tee-off time for the weekend, buy the perfect gift or simply catch up with news or what’s going on in the investment markets, all of this is possible in this age of 24-hour online connectivity.

At 9pm from bed, you can scroll through the headlines and find out anything you want to know: about the possibility of an impending economic recession, Holden’s demise, Brexit or Coronavirus. Even the latest on our trade relationship with China, or Bitcoin’s turnaround.

And, because we’re plugged in 24/7 there’s certainly a sense of ‘immediacy’ and ‘urgency’ sometimes, too. A feeling that we need to do something. Right now. This can be particularly true for investors, especially if, on the face of it, the news seems a little foreboding.

But it’s important to remember that what you read on the internet is not always a good basis for decision making. Nor is reactionary thinking.

Here’s why.

After the US stock market volatility in February 2018, a US-investing app called Stash conducted research on how investors behaved over that period, by monitoring what decisions they made.

Don’t react, respond

When the major stock indexes suffered big losses before moving into ‘correction’ territory, the research showed overwhelmingly that male investors tended to panic. They were, on average, 87% more likely than the female investors to sell.

They continued this pattern over the following week, showing to be 76% more likely than women to sell their stocks and shares. Women, on the other hand, had a tendency to wait until the dust had settled, and then lock in their losses.

The study primarily focused on the different attitudes of men and women when it comes to investing, but it also illustrates the point that a significant number of investors were making decisions when the market was still moving.

This kind of rash decision-making, so tempting under fraught conditions, is not necessarily the best strategy.

If you’re an active, long-term investor, then by now you will probably have heard the old adage that by the time a company releases information, or the finance journalists get hold of a story, it’s often too late to capitalise on any potential opportunity, or indeed, avoid any negative market reactions. Because, once the hype sets in, and the market starts to react, then it’s not always easy to predict the straightforward path ahead and to make sensible decisions about whether to sell or buy. This is not just because the landscape is still shifting, it’s also because emotions tend to be running high, too.

Emotions tend to play havoc with logic and reason.

This is why it’s important to have professional fund managers and financial planners working with you. They can provide clarity in the midst of uncertainty. The nature of their jobs is to live and breathe the investment market. They have access to reliable and sophisticated data and, if they have connections to the right sources, they will often know about a company’s plans long before they’re released to the public. They can, after years of experience, generally sense how a particular company’s stock will react in certain circumstances too, and provide advice when you need it and a valuable sounding board to help you make decisions.

The most important factor to remember – a key to investment success – is that you need to take a medium-to-long term view. Knee-jerk reactions can be seriously counterproductive. They have the potential to result in decisions that may erode your long-term financial position.

When to hold on, when to let go

So, if it’s not wise to rely on the latest news, or indeed the past performance of stocks and shares to make decisions about your investment portfolio, then what can you use as a basis for decision-making?

Firstly, always remember that all investments come with a degree of risk. This is exactly why you need to ensure diversity in your portfolio. All investments will fluctuate and be subject to cycles which include both positive performance and downturns. Diversification across a number of different investment classes – for example, property, cash and local and overseas shares – will help minimise risk.

The importance of diversification in your portfolio

Take a broad view, because when values and performance average out over the course of any given investment period, some asset classes will have performed better than others.

It’s wise to have a balance between overseas-based investments and local investments, too.

It is exactly this strategy which helped many people survive the GFC in 2007-2008. Even when the markets were in free-fall, some investments weathered the storm and remained more stable than others, delivering small, but steady returns. Those investors with diversified portfolios fared better overall.

Remember your long-term goals

Secondly, remember what your goals are. Often this can be a sobering thought in a time of consternation or confusion. The next time you see a headline that concerns you, or a press release on a company website promising the lure of easy, fast financial gains, just take a moment.

Assess where you are. Whether you have financial losses that concern you, or some curiosity about an asset class you’re not yet invested in, get professional advice before making any quick decisions.

A healthy dose of caution will always hold you in good stead.

To find out how we can help you keep focused on your financial future, contact our team today. Read more Personal Wealth Management articles.