Not long ago, I was visited by an entrepreneur who was considering becoming a client. Like investors everywhere, he had been subjected to the relentless pessimism of the financial media: the debt crisis in Europe, sluggish growth in the US, a looming housing bubble here in Canada. These headlines have everyone spooked: not since the darkest days of 2008 have I seen such fear and loathing among investors. The entrepreneur in my office that day was full of questions about what strategies I would to use to manage his investments in the current climate.
The conversation got me thinking about the role the financial media play in shaping investor sentiment. There is no question that the last several years have been difficult—and many potential problems remain—but the financial gurus in the newspapers and on business networks seem even more bearish than usual.
Bad News Sells
The obvious reason is that bad news sells. There’s an old saying in the news business: “If it bleeds, it leads.” Every scrap of negative economic news is reported prominently, while positive news gets downplayed. You wouldn’t know it from watching TV or reading the newspaper, but returns on major asset classes have largely been decent so far this year (with the exception of Canadian stocks), especially when you compare them to “guaranteed” alternatives.
|Year-to-date returns in Canadian $, period ending June 30, 2012*|
|Cash||Canadian one-month T-Bills||0.43%|
|Canadian bonds||DEX Universe Bond||2.03%|
|Canadian stocks||S&P/TSX Composite||-1.53%|
|US stocks||S&P 500||9.42%|
|Non-North American stocks||MSCI EAFE plus Emerging Markets||3.13%|
|Real Estate||S&P/TSE Capped REIT||11.59%|
|*Data source: Dimensional Fund Advisors, iShares|
The Media Loves The “Perma-Bears”
The media seem to have fallen in love with “perma-bears” like the economist David Rosenberg, who recently put together a presentation called 51 Signs the Economy Is a Total Disaster. (What, only 51?) They continue to seek the opinions of Nouriel Roubini, nicknamed Dr. Doom, anytime they need an economist to forecast Armageddon. It doesn’t seem to matter that he’s been mostly wrong for three years. I suppose even a broken clock is correct twice a day.
I’m not sure why these pessimists get so much airtime. Maybe it’s because spouting doom and gloom somehow sounds more sophisticated. If you try suggesting that markets have always been volatile, and that long-term investors should just stick to their plan, some people think you’re a naive fool. Wise investors are always “repositioning” for what’s coming next—that’s the conventional wisdom, anyway.
I think it’s healthy to be skeptical when it comes to the financial media, especially when you remember their vested interests. These are difficult times for newspapers, and paying talented journalists to do real reporting is increasingly rare. It’s now common to see articles in the business section written by money managers who are simply “talking their book.” The gurus on the business networks are doing the same thing. Not coincidentally, many of these guest columnists and experts work for firms that advertise in those papers and on those channels. It’s in their interest to make investors feel confused so they can offer their products and services as the solution.
Focusing On What Is Important
All of which brings me back to that conversation with the entrepreneur who asked about my strategy for the current investing environment. I explained to him that my role is not to constantly reposition my clients’ portfolios in response to gloomy headlines. Instead, I take a goals-based approach: my role is to help my clients achieve their financial objectives, whether that is saving for retirement, or for a child’s education, or for a legacy left to family members. When my clients and I come up with an investment plan, we assume that there will be bumps in the road. That’s why we build robust, diversified portfolios that can hold up in all market conditions. We don’t need to tinker with these portfolios unless their goals change. This disciplined strategy offers the best chance of success.
Time will tell whether the entrepreneur will become a client. At the very least, I hope he now understands that investing requires context and long-term thinking—qualities that are in short supply in the financial press. Now that summer is in full swing, I suggest going on a media diet. Play some golf, hang out around the pool, take in a ball game, or just spend time enjoying your family and friends. In the end, those are the goals we’re all striving for.