What can be said about the earthquake and subsequent destruction and devastation in Japan?
The pictures on our televisions tell the story and set a graphic backdrop that leaves all of us moved. I can't imagine that it is even possible to overstate the magnitude of the events as they impact the lives of so many there. But I want to talk about a residual tremor - the tremor that rippled through stock markets over the following few days, and more specifically, the wave of forecasts of financial armageddon from the news media.
Unfortunately, it is a far too common theme, whereby every real story, every human story, is sensationalized and magnified into pending doom for the financial markets, all in the name of ratings.
Obviously, we are interested in the events that impact and shape our lives. But it does not appear to be enough for the news agencies to report the news, to inform us. They feel the need to shape the news, to sensationalize it, and to speculate and postulate until the telling of the story becomes the story.
All we need know is that news agencies are in the ratings business - and they get their highest ratings from the most emotional and spectacular events, such as wars and disasters. That, in and of itself, is not a problem. Where it becomes a problem is the way they leverage these events in an attempt to keep the viewer compelled, and they do so by implicitly promising that that there is plenty more doom and gloom to come.
This becomes a serious problem for the investor because their 'journalism' elicits strong emotional responses from us. And investment decisions that are made emotionally are rarely good decisions.
Sound investing requires patience and remaining focused on long-term goals. Eliciting emotional responses in investors flies in the face of those goals.
That is why helping our clients remain focused on their goals, and not succumbing to emotional decisions, is the single most important, and valuable thing that we do.
Amid the panic that overtook the markets in the days following the earthquake, we were aggressive buyers, putting cash to work as stock prices were temporarily depressed. We were also busy reminding our clients that they should just turn off the TV.