Today with the 24-hour news cycle and too much time to fill talking about daily market events, the problem of talking heads sounding off mostly for the publicity and the media presence — and not because they are particularly insightful — is exacerbated tenfold.
If you fell in love with investing in the stock market when I did — in the days before 24/7 coverage and specialized websites and networks — your daily market coverage mostly came from a man named Chet Currier.
From 1974 — around the time I started investing as a teenager — until 1992, Currier covered the stock market for The Associated Press, and what he and his colleague John Cunniff wrote about the daily whys and wherefores of the market was regurgitated on news reports and reprinted in newspapers around the globe every day.
But as Chet later confided in me — we became friends for many years before he died from pancreatic cancer in 2007 — he never worried if the daily story on why the market moved a certain way actually nailed the cause of the move.
“What I care about most,” he said when I interviewed him for a story in the 1980s, “is that someone who is good with a quote is available when the market closes, with a plausible explanation, because I have a story to file. … I’d like to find the right person with the best explanation, but my job is to get the story out. Right or wrong is for someone else to decide.”
Today with the 24-hour news cycle and too much time to fill talking about daily market events, the problem of talking heads sounding off mostly for the publicity and the media presence — and not because they are particularly insightful — is exacerbated tenfold. It was clearly visible when volatility came back to the market recently in the form of a few big point drops.
In reviewing what the experts said to investors, it was easy to find several common phrases and explanations.
All of them were pap and poppycock.
These old saws will be brought out again the next time there’s a big decline or a market setback. And they will be just as lame the next time you hear them as the last time. That said, here’s a guide to why five common bits of market advice given after market swings are hogwash:
• “It’s no time to panic.”
There is never a “good time” to panic. The most credible bears in the world have never called for investors to panic.
As a long-term investor, panic should never enter into your mind. You shouldn’t panic about being in during a downturn, or panic about the money you strategically have on the sidelines while the market is running up. Any expert suggesting that there is an appropriate time for hysteria lacks the emotional control and discipline you are striving to maintain.
Calm down, review your time horizon and asset allocation and take a deep breath, but avoid the frenzy that tough market times can whip up.
• “Stay the course.”
“Do nothing” may actually be the right way for average investors with long time horizons to get through market swings. But if you’ve stayed the course for a long time, your portfolio may not be quite what you think it is.
Say, you wanted to maintain a 60-40 split between stocks and bonds. You set that up a decade ago using total stock market and total bond market funds. Your stock portfolio has generated roughly 75 percent of your returns over the last decade; as a result, your overall portfolio today is closer to 70 percent stocks.
Meanwhile, you are a decade closer to retirement and a more conservative split of your assets might be appealing.
“Staying the course” in this case is actually taking you further off your planned route.
So check your course, re-plot it if necessary but don’t stick with it until you are sure you have plotted something you can live with in whatever conditions you see as lying ahead.
• “It’s a buying opportunity.”
As the market headed toward record highs in January, few people were excited about stock valuations. Prices have fallen from their peaks, but not to bargain levels.
Yes, there are experts who suggest buying any time the market has fallen 7 percent from highs. And, yes, the “right price” varies based on each individual investment and your preferred investment style.
Still, it’s a mistake to assume that every decline is a buying opportunity; in a true “correction,” prices are moving to appropriate levels, not to on-sale prices.
Thus, it’s a time to be opportunistic, but make buys because you like their prospects rather than because prices are down from peaks.
• “It’s becoming a stock-picker’s market.”
Good stock-picking never goes out of style. Yes, it’s easy to ride the wave — and profit from indexing — when the market tide is rising, but making good choices in all conditions is what separates long-term winners from the pack.
Focus less on the stock-picking than on the idea that the market is about to make it harder on investors. That’s less about picking winners than it is about coping with how increased volatility affects your emotions and your portfolio.
• “You knew this was coming.”
Yes, investors knew that downturns and volatility had not been repealed, but investing is a bit like going to a horror movie. You might know that scary stuff is going to happen, but it doesn’t mean you don’t jump when there is a surprise.
The people who “knew this was coming” didn’t know the market would rebound as quickly as it did. They couldn’t be sure that riding it out would be the best move.
Inevitably, there are market troubles ahead; knowing that is good, but what matters most is how you react to them when they happen.