Sensationalism and long-term investing don’t mix

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For financial professionals only

The bad news seemingly never ends at the moment. With 24-hour news bulletins and constant social media updates we’re surrounded by an exhausting cycle of negative headlines. Is there any good news? And if so, why aren’t we hearing it?

Terrible events are obviously happening, such as the devastating war in Ukraine and severely strained economies grappling with inflation. The harrowing inequalities of our world continue, and the task of fighting climate change looms large. These issues rightly demand airtime, but so does your mental health. If you’ve had enough of hearing the bad news, it might be best to turn it off.

Whilst the headline issues are real, the presentation and persistence is sensationalist. We know the media favours jarring and shocking narratives, and our digital lives provide little respite from their onslaught. Taking a step back is important – in time we’ll get through this, we always do. For example, European gas futures have now retreated from their summer highs back in line with the longer term average, due to the weather being better than expected so far this winter.

Sensationalism 1 Updated

Source: ICE-Endex

How does this relate to long-term investing?

The media influences our personal moods and wider investor sentiment. Market moves this year have been historic, so a degree of recognition is warranted, but sensationalism rarely helps and often hinders.

The saying goes that if an investor can be anything, they should be optimistic. If I could add to it, I would offer that an investor should also be calm. The risks of overreacting far outweigh the risks of sticking with long-term allocations where they still hold true. The table below shows that a US 60/40 portfolio has delivered a double digit positive return on 11 out of 17 occasions following a negative return since 1932.  The decline for a US 60/40 portfolio year to date is worse than every calendar year aside from 1931, and we’re on course for the first year of double digit declines in both the S&P 500 and US 10-Year Treasuries.

Sensationalism 2

Source: Charlie Bilello, Compound

Keeping emotions in check

Almost every investor suffering abnormal losses this year will experience emotional reactions. Anger? Upset? Fear perhaps? Or all these feelings and more. It can help to recognise that these reactions, whilst natural and justified, are emotional, and the best investment decisions are rarely taken in this mindset. In these moments, it may be worth taking a break and making an objective assessment later in a calmer frame of mind. Is my investment strategy still fit for purpose? Has it performed in line with expectations relative to the market? If the answer to both these questions is yes, and your time horizon is adequate for recovery, then perhaps you can afford to be calm and optimistic. And remember, sensationalism only serves to steer you off course.

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This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity.

Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.  

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