Emotional Pressures

Nov 2015 //
Optimism/Pessimism
Behavioral Finance

Were newspaper headlines during the most intense part of the market correction helpful or harmful for investors?  The easiest answer is “yes,” since depending on one’s investing experience and temperament, the headlines could have proved to be either helpful or harmful.  Consider these headlines from the most popular financial publication in the country, The Wall Street Journal, during the thick of the stock market correction:

August 21st: Growth Fears Send Stocks Into Skid
August 22nd: Stock Plunge Picks Up Speed
August 24th: Market Rout Upends Winners, Losers
August 25th: Markets Reel in Global Selloff
August 26th: Late Tumble Dashes Hope for Rebound

Headlines like these reflect alarm or even panic.  For an inexperienced investor, they can create pressure to sell:  “Save yourself before things get worse.”  However, successful investors are aware that a whiff of panic almost always accompanies market lows.  Therefore, seemingly scary headlines can be a tipoff that good buying opportunities may be close at hand.  Reminiscent of the Peanuts cartoon in which each year Lucy yanked the football away from Charlie Brown just as he went to kick it, some investors fall for scary headlines time and time again.