Smart investors ignore the news

Chuck Jaffe

You can read the headlines, just don’t trade on them

If the market is making your head swim, you may be able to solve the problem by turning off, tuning out and dropping out of the 24-hour news cycle. 

That’s an odd suggestion coming from someone who works in the media, but what makes it doubly strange is that it’s prompted in part by the website I trust like no other, MarketWatch.com. Beyond simply being my employer, I trust the site because I know personally the quality people and journalists my fellow staffers are. 

But, last month, MarketWatch set a site record for the number of unique visitors to its news pages, which set me to wondering what kind of messages we were sending to both new and increasingly active visitors at a time when they were presumably drawn in looking for some measure of market guidance to calm their nerves or keep them on top of the financial news. 

In the old days of newspapers, I would have gone through a stack of front pages and looked at headlines. In the Internet world with its 24/7 action, that doesn’t work, because a busy news site will change its front page multiple times over the course of a day, and there’s not necessarily a record of what the site looked like with each of those changes. 

So I looked at “snapshots” of MarketWatch’s front page, one each day — just the top screen, always the first one available after 5 p.m. ET — just to see what titles would have captured the attention of an average investor seeking some guidance, perspective and outlook after the market had closed for the day. 

Here were some of the highlights, in chronological order, from July (I have removed the names of experts quoted; it’s unimportant if you actually recognize the name, but highly important that a news site wouldn’t use the name of a non-expert): 

•‘This is not an average, typical or normal bull market’ [expert] says

•Today’s bubbles aren’t like the famous bubbles of the past

•If ever the stock market flashed a ‘sell’ signal, it’s now

•‘Rotten rotation’ could signal bull market is living on borrowed time

•[Expert]: U.S. stocks will be ‘very disappointing’ for 10 years

•A stock correction is coming, then more years of gains; [expert]

•[Expert] There’s a big hole in the bull case for stocks

•We’re in the third biggest stock bubble in U.S. history

•Not much fallout from Gaza, Ukraine? Wait a year, says [expert]

•[Expert]: Great Crash of 2016, third $10 trillion loss this century

•Greenspan says bubbles can’t be stopped without ‘crunch’

•Buy-and-hold investing is impossible

•Stock bubble is ‘beyond 1929 and 2007’: economist

•Stock trader who called 3 crashes now sees a 20% collapse

•[Expert]: Wait to be uber-bearish until autumn 

That’s just 15 examples — one of them from my own column — less than half of the investing-oriented headlines that caught my eye. I would have included something from an expert suggesting a big gain ahead, but there weren’t any of those atop the pages I looked at (they could have been there at other times of day). 

It’s no wonder after a barrage of headlines like that that the first monthly measure of investor sentiment released for August — the Investors’ Business Daily Economic Optimism Index — was down sharply. 

But at a time when the round-the-clock news cycle and the ubiquity of social media makes it possible to not only read the stories but to feel like you can influence the news — or at least the thinking of others who have seen the same stories — it’s hard to believe there will ever be enough agreement between the bulls and bears to believe an overall sense of optimism. 

They’re no more likely to get together and see the situation in a remotely similar way than impassioned Republicans and Democrats would be to suddenly see key issues the same way, allowing for fast, easy progress. 

Meanwhile, if this stuff confuses the general public, it enriches the sharpies on Wall Street.

Malcolm Polley, president of Stewart Capital Advisors and co-manager of Stewart Capital Mid-Cap SCMFX +0.29% , could not have been more blunt about how the headlines are helpful to the industry, even if all they do is confuse the public. 

“To the extent that the news and information turns into crap — and that crap turns into volatility — that’s good for me,” he said. “For us, it’s information that creates a dramatic downward move in a price, where the information might be valid, or it might be misunderstood. … The knee-jerk reaction is ‘This looks bad, let’s get out,’ but that creates opportunities if you understand the situation, rather than just reacting to what you read or hear. 

“We like the information — and that there’s so much of it available — but most of it’s just noise.”

Moreover, the constant prognostications have made it so that everyone seems to think they can be a market weatherman, capable of spotting the next squall, shower or sunny day. Relying on that purported “expertise,” rather than trying to be prepared for all weather conditions is how someone finds themselves sitting inside on the sunny days or getting rained on without an umbrella during the showers. 

“The headlines and forecasts are interesting and funny, but they should teach investors to just give up on the short-term trends, because even if you are right there you’re not right for long,” said Ned Riley, president of Riley Asset Management in Boston. “I sometimes make short-term forecasts too, but I’d rather be right in the long-term.” 

In short, reading the analysis and looking at the headlines is fine; it makes you a more informed investor. 

Acting on it is where investors get themselves into trouble. 

If you’ve been changing your actions based on the news, the headlines or the websites you favor and it hasn’t been improving your investment results, it may be time to disconnect your portfolio from what you are reading and listening to. 

Said Riley: “If you get the long-term forecast wrong – if you miss out on the trend for the next few decades because you’re concerned about what could happen in the next few weeks or the few weeks after that – that’s how you wind up in real trouble. … It’s not about how many corrections or downturns you called right if all those moves don’t add up to making real money over a lifetime.”