Have you consider the impact of "headline risk?" Managing investments is not an easy task. Whether it is the professional or someone managing their own accounts, to do this job well requires patience, research, time, money, discipline and the occasional use of a crystal ball. After all of this, the non-professional manager may still seek confirmation the decisions made were in fact the best ones. Most often, the items causing doubt are the headlines we read and hear each and every day.
How the manager reacts to this news is where most professional managers differ from those managing their own accounts. Headlines can shake us to the core. Many investors and those managing their own accounts can get wrapped up in these headlines, causing them to delay decisions or even make decisions based on the headlines they read and hear. Before reacting to these banners, it would be wise to remember the job of the editor or station manager. Editors and station managers want an audience. Headlines always sell papers and those containing visually descriptive words such as plummet, crashes, spiraling downward, tumbles and nose dives tend to attract far more attention than other word choices. For television, how often are watchers requested to stay tuned for some story whose title was troubling only to find the actual story far less worrisome?
It is not unusual for the public to react to the headline and never hear or read the entire story. Those managing funds must remember the objective. Although that does not mean, "damn the torpedoes, full speed ahead!" The appropriate response to headlines is research. The real story must be uncovered and its potential impact on the investments reviewed. Every manager should know there are times when the account values will go down, even when steps were taken to minimize the negative impact. On some occasions, few changes take place and the best plan is to ride through the difficulties. Other times, like 2008 and early 2009, it is best to take protective steps through reallocations or shifts to cash.
However, during 2009 the negative headlines did not stop once the market started trending up after March 9. There was still a great deal of concern, and millions were unemployed. But, for those who ignored the headlines and began looking for the truth and potential, significant returns were made. I have shared this quote from Warren Buffett before, and it goes something like this: If you are waiting to confirm the arrival of springtime by the sight of a robin, you have missed the start of spring. By waiting for confirmation when investing, it is likely the majority of the move has already occurred.
Investing is not without risk, but the long term rewards are handsome most of the time for those who are not swayed from their original plan. Do not permit negative headlines to alter investment strategies without first confirming there is truth in the story.
For assistance with portfolio allocations, insurance, estate planning, or investment management contact me at Quality Financial Concepts or one of the other Certified Financial Planners in our area. To continue a personal quest for education, you can also view our learning center on our website, www.goqfc.com. There you will find articles on a variety of topics, on-line seminars, calculators, as well as a host of other free tools.