An Integrated Advisor Network firm

Leave the Room

When I get wound up about some political issue, my wife leaves the room. It is a trick she learned from my secretary, who does the same thing when my obsessive compulsiveness kicks in over an inconsequential event. It’s also a trick that we should all learn about consuming news, writes Mark Manson in his blog “Why You Should Quit the News.”

In short, he says you should quit the news because “…the vast majority of news is… of little relevance and utility, promoting skewed and inaccurate perceptions of the world, of other people, and of ourselves. It generates stress and anxiety, causes greater distrust in others, and can actually make us less informed about the world…”

The problem isn’t that information is bad, it is that the goal of the news media is not to inform, but to get your attention. What they are doing, Manson explains, is taking advantage of cognitive biases “…that we all fall victim to, and [using] them to keep us engaged and wanting more.” It is no different than what video gaming companies do to keep their users addicted.

The result, according to Manson, is that the “…news media optimizes information that feels important with little regard to its actual importance.” Such information is “immediate, fast-moving, narrative-driven and highly visible… The problem is that the most important information is usually long-term, slow-
moving, impersonal, abstract and invisible, and not necessarily negative.”

The financial news media is no different notes Jeff Sommers in When You Think About Investing, Don’t Think About the News. To prove his point, he quotes Nobel laureate Richard Thaler: “Sometimes you’ve got to just turn off the news. Don’t pay any attention to it.” His reasoning is the same as Manson’s, in that the focus is on short-term emotions instead of long-term thinking. “This is concerning,” say the authors of Noise: A Flaw in Human Judgment, “because judgment has an emotional component. The psychologist Paul Slovic terms this the affect heuristic; people determine what they think by consulting their feelings.”
Consequently, our judgment is impaired by watching alarming newscasts about stock markets. We think we are being rational when we are in reality panicking because we “come up with plausible rationalizations for our judgments and… actually think that they are the cause of our beliefs.”

At times like this, when markets are uncertain and the news is scary, it is more important than ever to “…stick to your plan,” says Thaler. “Don’t think you are a genius and you can beat the market. Because you probably can’t… My thing is, that we know that any sudden moves by individual investors… if anything, they’re more likely to be wrong than right because our instinct is to sell when markets go down and to buy when they go up — and buying high and selling low is just not a good strategy.”

After hearing Thaler’s comments about sticking to a plan, Sommers asked him the logical question: “So what constitutes a good plan?” He said it starts with an emergency fund of a few months of income in a bank account. Next, you diversify with low-cost U.S. and international index funds as your core holdings. If you are healthy, it is usually best to defer taking Social Security for as long as possible. And finally determine an appropriate balance between stocks and bonds, based on your needs and risk tolerance.

If I am talking politics, you should leave the room. I would suggest doing the same thing if you are in a room with the TV tuned to financial news. You want information that is important and not information that feels important. As Manson warns, “Paradoxically, in its effort to inform… news media positions itself to misinform…” So, when making investment decisions - think about the plan, not about the news.