How to Think About Negative Headlines and Stocks

Posted on February 3, 2020 at 7:43 AM PDT by

A presidential impeachment. A virus running wild in China. An election year in full swing.

Now is the time to get out of stocks, right? If only it were that simple.

If you look back over the long history of stock market trading, there have never really ever been years of total calm. Wars have broken out. Natural disasters spring up.

No matter what your political leaning, every few cycles  the “wrong” person is in power.

And yet — companies seem to shrug it all off and just keep doing what they do, which is make money.

If you take a step back it makes sense. No one is going to stop eating or buying clothing because of an election year. People will buy cars if they have money or credit, whatever is going on in the world.

It’s easy to panic over the news. And it’s absolutely a bad idea.

Remember three years ago, when the Brexit referendum happened the first time? Lots of people immediately sold their European shares.

Stocks in Europe fell, then rose right back up soon after that. Meanwhile, absolutely nothing about Britain leaving the European Union had happened at all. Far from it.

Three years on, just this week, the EU finally accepted an exit plan for Great Britain. And nobody blinked.

That’s because overreaction to the news is really just part of investing. If your time horizon is tomorrow morning at 10 a.m., what happened this afternoon in the world might be relevant.

But your time horizon is not tomorrow morning, tomorrow afternoon or even, most likely, in the next six months.

Inconsequential

Most people invest for years and decades. Over the long run, even the most catastrophic of news events has a way of seeming inconsequential.

And people keep right on buying homes, saving for college, eating out and doing all the things that keep an economy moving forward and stock markets inching higher.

If your portfolio is properly diversified and adjusted for your real time horizon, there’s no need to even pay attention to what might happen in the news. Mostly, the market takes care of itself.

Moreover, panicking out of stocks at the wrong time means you are likely to miss those oddly quiet stretches where stocks put on real gains you would otherwise miss completely.

MarketRiders, Inc. is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.




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