The Media May Be Misguided on Market
by Paul Adams
Hello, and welcome to Sound Financial Bites. My name is Paul Adams, president and CEO of Sound Financial Group. Today’s post is a change to get some quick learning in. This is a shorter post than usual, and there’s a good reason why. We’re going to hit some targeted thinking around the media; what it attempts to do for us, or to us, as it relates to the way we would handle our investments.
When we’re investing, one of the best things we can do is, first, figure out our own personal strategy. How old do I want to be when I have financial independence? How many hours a week am I going to work? Where do I want to work? All of those things are incredibly important and that’s where all of our financial strategies should start. If you’ve ever had a hard time keeping financial commitments or building financial strategy, it’s probably because it just didn’t start with what is personally important to you. Then, you move on to building your financial strategy.
Building your financial strategy is the kind of thing where you can hold that strategy because you know it’s fulfilling on your own personal aims. So, that’s pretty easy. The problem is if we don’t have all our personal aims squared away and then we get exposed to media, what we almost always end up doing is accepting somebody else’s opinions and interpretations. Inevitably we’ll end up taking action that maybe we shouldn’t take with our money. Or maybe things that might absolutely thwart what would be important to us if we took enough time to articulate what was important to us.
We’re going to talk about a little bit of a sensitive subject: the election of Donald Trump. I’m not going to talk about his election. I’m going to be talking about what the media and what many of those prognosticators were saying prior to his election.
To set the stage, this is arguably, at least in my lifetime, the most contentious election that we’ve seen, and also the most surprise upset anybody was expecting. Prior to the election, fortune.com’s Katie Riley reported that Citigroup said a Trump win is going to have negative impact on the stock market. She said that the S&P500 would fall 3-5%. Evelyn Cheng said on CNBC the day before the election that JPMorgan, Barclay, Citi all expected a Trump victory would have a negative impact on the stock market. In fact, Barclays went so far as to say the S&P500 may fall 11-13%.
Here we are, in February 2017 and that has not happened. None of those prognosticators, so far at least, were correct about the market being decimated by Donald Trump, or by any particular binary event. This is not a Trump conversation. I want to be absolutely clear on that. What this is is a conversation about how any time there is a “one way or the other” situation. There are always prognosticators saying, “If this happens, then this is what it’s going to do to the market. And if that happens, it’s going to do this to the market,” and they’re all out there all the time saying these things. It’s not about whether or not they’re correct or not. Many times, they are not correct. In fact, what it’s about is making sure that people are willing to move their money.
If you watch any of these shows where they have the stock market prognosticators — whether that’s a show host themselves or somebody that they interview — what you’ll almost always see on that business or market watch show, is a lot of financial institutions advertising who benefit from you moving your money.
We — as people who watch the news, watch one of these shows, read The Wall Street Journal or any other major publication out there — are not their customers. We need to get very clear about that. We are not the customers of these media outlets. The customers are their advertisers. So, when the customer is the advertiser, it changes everything. So, wait a second. Then, who am I?
Well, I, and you, and all of us are the product that that advertiser sells to all of their advertisers. That media outlet sells us to the advertisers. They say, “We have X amount of viewers. They have this kind of income. This is how they look demographically,” and they sell us to their advertisers, and the advertisers advertise.
They need to create a conducive environment in which we’re going to be willing to move our money and transact in some way. This also includes all the people that make products. If the markets are really uncertain and you don’t know what’s going to happen, and you’re going to take $100,000, you may as well just buy that Mercedes instead of putting it on the market, because it’s going to drop anyway. You might as well drive a cool car while the market drops. That’s what we have to be so clear about.
One of my favorite interviews was Mark Cuban, a guy that I’ve really enjoyed watching in interviews. He made a huge stock market prediction, which was he was going to hedge over 100% of his portfolio. It looked at everything that would happen if Trump won. Meaning, he was going to effectively ensure or hedge the entire portfolio more than 100%. He bet that the market would go down significantly, and that would lead him to a significant gain.
If he actually ended up doing that and his bets did not work out — or at least haven’t worked out so far — it doesn’t matter if they work out now or they work out later. It’s so easy for any prognosticator to go back and say, “Here’s what happened and here’s where I was right.” So, to somebody that prognosticates that Trump’s election was going to destroy the markets, and one year from now, there’s a stock market drop, you can nearly guarantee any of the prognosticators are going to say, “Well, I told you this was going to happen a year ago”. Yet, at that time, the context was that it would drop immediately after the election because of whatever reason they gave.
We need to be clear about all of the people offering opinions, and we need to then take those opinions. This includes all the media, but also includes our well-intentioned uncle. It includes the well-intentioned person, the office next to us at work, and it includes the well-intentioned opinion of our neighbor. What we need to do is check all of those against whether or not it stands up to independent academic analysis and will hold up to indisputable math.
Firstly, will it hold up to both math and scholarship? It’s always worth testing. If you ever see anything on the news that you don’t fully understand that meaning of, and maybe your neighbor said X thing, you take that opinion back into the laboratory. You check it against math and scholarship and see if it’s likely to work out. We want to be aware of those things out there that are economic truths that we can use. But, the things that are meant to simply be opinion that may inflate us into taking action may not be as good for us. We need to just be aware of that.
I encourage you all to take some time to read up on the links in this post and really think about them. The Mark Cuban interview is interesting. He’s standing there in an Iron Man t-shirt during the interview. It really is interesting to see how sure people are about what the market’s going to do, and none of them really know and we don’t know. What we do know is we can embrace a market-investing philosophy that academically, historically, and mathematically has really given us the best opportunity to participate in the market without taking uncompensated risk. We have to take risk when we’re in the market, but we don’t have to take too much risk, and that’s what we’d love to help you with.
On a final note, what I want all of you to do is just reflect on your own personal aims first. What does your personal life look like? What do you want your career to look like? When do you want to stop working? When do you want to be financially independent? Then, assess any final decision you’re making against that. Let that be your plumb line and then assess your decisions on that, not based upon anybody’s opinion.
Don’t even take it as fact when somebody says, “This will produce a better rate of return than that”. That could very well mess up one of your personal ambitions. Maybe your personal ambitions are having a ton of free time, working only three days a week, never being interrupted when you’re with family, owning a large real estate portfolio, etc. Unless you also have a strategy for hiring your property management company, this fatal opinion might be something that could derail the free time you wanted with your family. You want to always check. There are very, very good things that could actually disrupt the outcomes we want those investment tools to have for us and have for our lives personally.
Thanks for reading this post. Have a great day.
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Paul Adams is a Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is an indirect, wholly-owned subsidiary of Guardian. Sound Financial Group is not an affiliate or subsidiary of PAS or Guardian.
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Guest speakers are not affiliated with Guardian or PAS unless otherwise stated, and their opinions are their own. Opinions, estimates, forecasts, and statements of financial market trends are based on current market conditions and are subject to change without notice. Past performance is not a guarantee of future results.