As I've been following the news recently I continue to be reminded of something that investors need to hear from time to time: be careful about what you listen to, and even more careful about the actions you take based on what you hear.
Was there a war in the Middle East? Yes. Is that a big deal? Absolutely. Is it scary? Of course. Are there economic and market implications? Without question. But should investors panic? No.
One of the things I notice about the news is the amount of FUD (Fear, Uncertainty, Doubt) that it appears designed to generate. When the war started and when the Strait of Hormuz was closed, I started seeing news images of gas lines from the 1973 and 1979 oil shocks. I wasn’t old enough to drive then, but I do remember it. I remember the odd/even system where you could only get gas on odd days of the month if your license plate ended in an odd digit and vice versa for even days. Nobody had a locking gas cap before 1973, but siphons and gas theft became a thing then.
Did we have gas lines and a shortage of gas this time? We didn’t. We did have a substantial price increase, but it was not the same as it was in the 1970’s - the situation is different and the world is a different place now. Prices are coming back down now (and note even if the war continued, plans were already in motion to reduce the impact on a Strait of Hormuz disruption - humans are creative and adaptive).
Note also that gas in January, in inflation adjusted dollars, was approximately the same price as it was in 1970. And gas mileage of the average car is about double what it was then. Does it hurt to have the price of gas go up 50%? Yes. But compared to 1973, the impact is less. People talk about having perspective – news by its very definition (it’s new!) gives very little perspective.
The point is that these images evoke an emotional response. I’d assert that much of the news is designed to do that - not necessarily to provide truth, but to provide info that will keep you coming back. If you’re anxious about an uncertain future (the future is always so, but the media misses no opportunity to hype that), then you will keep consuming the news and seeing the ads which pay them. It’s all about eyeballs, not truth, especially in the fractured, competitive news market we live in today.
I’m fond of saying that marketers (in government, private corporations, and financial institutions) know us better than we know ourselves. They have rules for how they get and keep our money. Those aren’t all bad, we can get good value for our money spent, but it’s incumbent on us to be aware and develop a set of rules for ourselves, so we can thrive and not be taken advantage of.
In the financial realm, I've seen this pattern repeatedly throughout my career. In fact, I see outcomes that differ from expectations all the time. The future is uncertain, and the things that seem obvious in the moment often turn out to be anything but. Yet if you consume enough financial news, you might come away believing that every major event has a predictable and inevitable conclusion. History suggests otherwise.
Consider the example of World War II - September 1939, when Germany invaded Poland and World War II began. If there were ever a moment when investors could be forgiven for believing the future was bleak, that was it. Or perhaps on December 7, 1941, when Japan attacked Pearl Harbor and brought the US into the war. The world was entering one of the most devastating conflicts in human history. Yet markets looked beyond the immediate crisis and the US market went up on average 10% annually between 1939 and 1945. Wars are horrendous but it reminds us that markets and headlines are often telling two very different stories.
That being the case, one could reasonably ask, “What do I do then that would be better than trying to discern the future (or listen to those who claim to do so) and make an educated guess as to how to act?” It’s a fair question and there are good answers to it. I’m attuned to this phenomenon and see it in the news constantly. Stay tuned and I’ll be bringing you more examples and further strategy discussion to help you be successful.
