Oops! Did the Media Influence Your Investment Choices again?

April 30, 2017 | Andy Blandford

Many studies show statistically that most personal investors buy at the top of the markets and sell at the bottom [Weber & Camerer 1998; Barber-Odean 2011].  Why is this?

We learn through the years not to believe everything we read or hear. Yet time and again, people can forget this at the very time they needed to remember it – especially when it comes to money and investments. The media (and some of our friends too) have agendas that demand our attention, and most often that attention is seized through drama and sensationalisation. This does not necessarily mean that the underlying data, facts or story is false or misleading. But without the drama would we even be paying attention?

Here inside the digital age, we daily access and consume vast amounts of data, news and views. This is a two-edged sword of course because consumption causes positive and negative influences upon our behavior. And with investments, this influence is exaggerated by the fear of loss of principle or profit accumulated. Either way, this can cause unhealthy anxiety which in turn can lead to emotionally-driven decisions, which commonly prove to be poor decisions. Such regretful choices are a ‘human condition’: mistakes that we try to avoid or learn from yet too often repeat in one form or another.

When markets are doing well, private investors feel more positive; they invest more; often trending more aggressively; and expectations can easily become progressively more unrealistic. Sound familiar? When markets fall (media calls these a ‘crash’) many private investors panic and sell out, often at loss, which is a good picture of what happened to many private investors in 2008 for example. Yet all investors know that markets go up and down, right? Between 2009-2016, the S&P500 index rose more than 280%. But many people missed out on much of this because by the time they were ‘emotionally’ ready to jump in again, much of the opportunity had already passed them by!

What can we do about this human condition? No, there is no ‘magic pill’, in my experience. Nor can we unplug our media consumption. Yes, we could be more discerning which media we pay attention to, but this is much harder than is seems, because the drama creeps back in, doesn’t it? Therefore, if we can’t sustain consistent control over the input we consume, it makes better sense to focus on the output from that consumption. Indeed, we need a ‘speed-bump’ between the influence and our consequent action to give us the time and opportunity to become more objective. Just like on the road, ‘speed-bumps’ are proven tools that increase our awareness of our surroundings by slowing us down. Yes, they can be inconvenient and frustrating at times, but they are certainly effective safety tools for road users.

Our internal speed-bump evolves from our experiences and life-lessons. These take considerable time, effort and cost (from mistakes) and usually these are a life-time in the making because they are formed progressively.

A suitably qualified and experienced financial adviser can be a very effective external speed-bump for you. He should be able to listen and attend to your issue objectively without ignoring your plan and goals, plus bring to bear lessons and experiences he has observed in the past that can be constructive here and now. In other words, he should be able to help you consider and assimilate the ‘bigger picture’ for you that an emotional context likely could not. This is very valuable to your future financial well-being. If you don’t have such an external speed-bump, then perhaps it is time to find one…