Investing

The Sky is Falling

Wow, news outlets can’t stop talking about the stock market. Market volatility is definitely good for the news outlets and pundits. However, the increased coverage and commentary is bad for investors and their portfolios.

Per Axios’ Mike Allen’s AM news feed:

Axios Business Editor Dan Primack (who noted that he hadn’t heard the word “contagion” in a while) emails me: “No one knows anything. Sure, there were contributing factors, like interest rates and the debt limit, and algorithmic trading bits being tripped and falling over each other like dominos.”

  • But, but, but: “No one really knows why markets have big days in either direction, save for when there is a major external event (terrorist attack, etc.). It’s a powerless feeling, bad for cable news punditry.”

Mr. Primack sums up one of the eternal truths of investing and the stock market very nicely. NOBODY knows why markets have big days in either direction outside of major external events. Sure, we all want to know why somethings happens and probably gain a false sense of comfort when there appears to be a reasonable explanation. However, there are so many factors at play when a lot of people and machines are involved in something like markets and investing.

I have two pieces of advice for you:

  1. Avoid, or heavily discount, any explanation of why the market is doing what it is doing.
  2. If you do decide to pay attention, don’t make any decisions based on what you hear.

You and your portfolio will likely be a lot happier in the long run.