Being an intelligent consumer of financial news is harder than it sounds.  The day-to-day market is a barometer of investor sentiment more than anything else; it would be wrong to assume that a poor start to the year reflects the current economic trend.  Staying calm during market declines can be difficult, but reacting emotionally is rarely beneficial.  The brain quite naturally responds to stimulus and instinctively assumes patterns in the data; it is important to resist the temptation to respond to every twitch and tic the market makes, as if the market “knows something.”  The challenge for all investors is to consume the news without being consumed by it.  Filter the news wisely through intermediaries whose judgment you trust.

What Does the Market Know?  Especially during downdrafts, many investors impute intelligence to the market and look to it to tell them what’s going on and what to do about it.  This is one of the biggest mistakes you can make.  It would be wrong to interpret the recent worldwide drop as meaning the market “knows” tough times lay ahead.  Howard Marks, of Oaktree Capital Management, fleshes out this theme.  Click Here

Looking for Answers.  Stocks began the year with the worst performance ever for the first two weeks, and investor confidence is shaken.  It can be difficult to stay calm during market declines, but reacting emotionally is rarely beneficial.  Risks have risen for the U.S. and global economy, but neither a domestic nor global recession appears to be on the imminent horizon, according to analysts of Charles Schwab.  Click Here

Consuming Financial News without Being Consumed by It.  Being an intelligent consumer of financial news is harder than it sounds.  Jason Zweig, of The Wall Street Journal, highlights the work of cognitive psychologist Paul Andreassen, whose experiments showed that paying close attention to financial news can lead investors to trade too much and to earn lower returns than those who tune out the news.  Click Here

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J. Mark Nickell & Co.

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