Avoid Basing Financial Decisions on Daily Headlines. The market seems to be at all-time highs. How do you determine what to do with your portfolio? When it comes to making smart decisions with your money, how do you filter the daily news in your strategy? Join Shane Tenny, CFP® Professional as he shares research on the media’s influence over our perceptions versus reality. We’ll talk about the anxiety and mistakes that are often made as a result of news headlines and solutions to help you prepare for future market volatility.
Transcript:
SHANE TENNY: Well, good afternoon, everyone. My name is Shane Tenny, and I'm one of the partners here at Spaugh Dameron Tenny and I want to thank you for joining in this afternoon or listening to the recording if you're listening to it afterward on the topic of media replay or as we've kind of presented it as deja news, where we're going to kind of talk about some of the themes that are present in the news media all around us, how they repeat themselves and how they ultimately impact our emotions and our psychology and our behavior as investors.
As we start our presentation today, I want to say a special thanks to our friends over at Hartford Funds who have helped compile this information in conjunction with the folks over at MIT and specifically a group there in their age lab where they compile information and research on investors and the decisions that we make.
Now, before I dove into some of the slides that we've got for you today, I want to introduce you to two folks. One you've maybe never heard of before, and one you most certainly have. The first gentleman I want to bring to mind is a guy named Walter Lippmann. He was one of the most famous journalists in the United States back in the 1920s and thirties, and in fact, literally wrote one of the first books on how media influences public opinion.
In fact, the name of the book he wrote in 1922 was called Public Opinion. And Walter Lippmann's premised on how media impact public opinion is that there is a world outside. And then there are pictures in our heads, and the media is the bridge between the two. Now, you may already be able to see why that's important because sometimes the pictures we form in our heads based on the news are not accurate. And it may be because there's been misrepresentation or it may just be unintentional.
Sometimes events of the day are compressed into 30-second or 30-minute broadcasts. And so we depend on snippets and sound bites and lead stories to form our opinions. One of the sayings that Lippman has in his book that I think is so appropriate for this conversation and even the media's coverage over the last couple of weeks of market volatility is this.
Litman writes: "media doesn't tell you what to think, but it does tell you what to think about." And that's really, really helpful to remember that a lot of the things that run through our minds during the day are driven based on what the media told us was important or presented to us as important to our days.
Now, the other person that I think is good to have in mind right now is a famous one. And that's Mark Twain, famous for many sayings. But the one I think that applies here is his saying that history may not repeat itself, but it certainly rhymes. And that is very true and easily depicted by some of the slides we have here.
So what I want to do is I want to present a couple themes to you and show you how one media outlet in particular, I'll use Time magazine here because it's easy to take their coverage over the decades and show you where the themes are. And so we're going to look at Time media's presentation of economic meltdowns, of retirement issues, of our broken system, and then of debt. And just kind of give you some perspective.
We'll start by taking a look at the economic meltdown. So here's five Time magazine covers. Depicting a struggling economy, whether it's surviving the lean economy in the top left, or how to survive the slump in the bottom right. Take a look at these covers. And I just want to ask you rhetorically, do you think these covers were from 2018 or from 2017? Were these spread out over time?
I'm going to show you the data in a second, but I hope you begin to see as you look at these "mmh, I can see where these could be from 2008 or 2001. Or frankly, I could see Time magazine publishing one of these cover stories last week." Well, you see, when I put the dates up here is that these magazine covers showing the same theme stretch over 47 years from the seventies to the nineties to the early part of this century and just ten years ago during the Great Recession.
As Mark Twain said, history may not be repeating itself, but it sure rhymes. There's a consistent theme here. We see a similar type pattern when we talk about retirement. This is always in the news. Social Security's viability. Being able to retire. How to best use for one case. Again, are these topics that were presented last month or last year? They certainly could have been. But in fact, again, they stretch over a couple of decades from the early eighties through 2009 in this example.
Our system is broken is a great theme that shows up over and over here. We've got a broken system from medical costs. Isn't that a theme that we've heard in the news the last couple of years of the crash in Wall Street politics, whatever the topic is? Again, there's reasons to point and say things are messed up. And then debt. A constant topic. Any time there seems to be a void of other things to point out, whether it's the deficit budget issues, Congress again back to the early seventies through the eighties. And certainly a topic that we've heard about even in the last few months.
Now out of the 20 magazine covers I showed you how many of them were positive? None. Now, of course, that's because we're picking out the ones that show a consistent theme. But you don't see consistent themes about innovation or growth or the market's resiliency. Again, as Lippmann wrote, "the media doesn't tell you what to think, but it does tell you what to think about." And when we're barraged with this type of information, it leads naturally to feelings of anxiety. And that's kind of what we're driving at with this presentation is just an awareness of the anxiety that grows within you. And the source of that, that anxiety can lead to mistakes.
And then I want to wrap up here with a couple ideas and solutions. In terms of anxiety research from a couple of years ago showed that heavy viewers of cable TV are watching 26,000 minutes of news a year. I actually did the math on this. I think that's over 400 hours or 8 hours a week of information. When you're barraged with that type of content. Don't you think it's going to have an impact on how you view the world and the decisions you make? In fact, until just recently, despite the second strongest bull market since World War Two, the public has viewed our economy negatively. Or more negatively than positively, I guess is a more appropriate way to depict us.
You can see it was just in 2017 where 58% of Americans finally perceived the economy as being good, even though it had been growing consistently for the last nine years. It's no wonder that negative perceptions about the economy persisted with the news media driving home these repeated themes over and over. And in fact the folks at the MIT age lab also used the Google Trends tool to simply screen how many times people Googled the word anxiety.
And just by shades of blue here you can see that from 2004 through '07, through '10 through '16, more and more people were Googling about anxiety. Is that a direct reflection of the news media? Certainly seems to me a plausible influence of it. And so how does all that lead to our behavior? Well, it leads to mistakes. Here's a graph of CNBC viewership over the last decade versus the S&P 500. And notice what the highest peak of viewership was for CNBC March of '09. Literally the worst time in the S&P 500 price index over the last decade.
In fact, if I remember correctly, I think somewhere in there the Dow fell 777 points and the news media across the country said 'Dow has worst day ever.' But the next day, when the market was up 485 points, there were no headlines that the Dow has best day ever. The positive news doesn't get covered because it doesn't captivate an audience as well. This leads to feelings of panic. And so I want to take a minute to describe this when we have anxiety.
What research shows is that in the midst of an anxious state, when things aren't clear, we presume it must be bad. And so in this chart, we've got two pieces of information displayed. The blue shading in the background is what we call a mountain chart of the S&P 500 index. You can see on the left the price value of the S&P 527 coming to its all-time low in early 2009 and then on a pervasive ten-year run over the last decade. So that's the market which has been doing well.
But look at all of the news superimposed over top of it and what that caused stock investors to do. The red line labeled cumulative equity flows, describes money either going into or out of domestic equity mutual funds. And you can see it's been dropping year after year after year after year. People are taking money out of stocks at a very time that the stock market is going up and up and up and earnings are going up and up and up. When the information is flawed, it's hard to make good decisions.
As I was just outlining, when money comes out of stocks, in this case, 1.3 trillion over the last decade, it has to go somewhere. And so people have been pouring it into bonds. Even though that may not be the most appropriate way to keep up with future inflation. The third thing the MIT age lab tells us that we're likely to do during periods of anxiety is become really risk averse.
When you take a look at this graph of the market's returns over the last roughly 90 years. You can see the green shimmering years in which the market had a positive return, and the red is showing years in which the market had a negative return. Now, you probably noticed what I did. More green or more red. Yeah, there's a lot more green. In fact, there's 68 green bars and 24 red ones. 68 years that the market had positive returns, albeit sometimes small positive returns, but plenty of times good positive returns. It's important to look at this because often it's the red years that dominate our thinking.
We become focused on the last time the market drop and forget all the ensuing years when it goes up. In fact, to take this concept a bit further. What's the opportunity where the markets earn more than 20% versus lose more than 20% out of the 68 positive years in the market? 34 of those have had returns of greater than 20%, and there were only six years where the market was down more than 20%. And yet that's what gets focused on. Which results in action on the part of investors often detrimental to their long-term growth.
I'll show you two final charts depicting the mistakes that people make over and over. Let's just take a look at the five market periods in the last 40 years when the market was down more than 30%. Okay. Going back to the oil embargo of the seventies through Black Monday in the eighties, when the Dow fell 20, more than 20% in one day. Of course, the dot com bubble, Y2K. Then we had the WorldCom collapse in '02 and the Great Recession in '07/'08. So the market was down significantly, and those periods were scary. They always are. But what happens if we focus on the fear and conclude that in the midst of uncertainty, the long-term outlook is bad?
We make bad decisions. And I'll depict that here again, this chart showing the growth of different types of investments over the same time period. So the red panic button is in there each time when the stock market was down more than 30%. Now, I'll give you some frame of reference. The orange line at the bottom shows how an investor who back in 1973 put $10,000 into a savings account and just earned interest. Interest rates have been really lousy the last decade. But remember, there were periods in the eighties when rates were north of 16%.
And so, in fact, over that 45-year period, roughly $10,000 would have grown to $109,000. Meanwhile, stocks, even with the five 30% drops over that period, would have grown $10,000 to a balance of over $800,000 during the same period. Most people don't have 100% of their investments in stocks. And so a balanced portfolio, a blend of stocks and bonds, would have grown to $609,000, certainly riding through the volatility that was present.
But the red line is the one I want to show you. And that's what we call here, a reactionary investor. How about someone who acts on what they feel? And in this case, every time there's a 30% drop in the market, this investor says, I can't take it anymore. I got to get out. They pull their money out and sit out for two years and then get back in. So five times during this 40-plus year period they exit the market for two years at a time. Ten years out of the market, cumulatively.
What happens? They do grow their money, their $10,000 still grows to over $400,000. But they've cost themselves $200,000, nearly in total growth. The ins and outs of the market are very, very detrimental as we saw. And in fact, I'll show you a slide in just a minute showing the difference between market returns and investor returns, because really the point of this is to help give you some solutions. It's natural to feel fear. The important thing is what you do with it.
The first thing is pay attention to the headlines you're focused on. Negative headlines captivate viewers. But they're not all the news out there. There is so much positive information available today, whether it's information about innovation like 3-D printing. And here you see depicted a jawbone that was printed by plastic on a 3D printer and implanted in an 83-year-old woman. It's literally changing health care and manufacturing and all sorts of other industries. The U.S. is more energy independent than at any time in the last several decades. Drones are bringing all sorts of opportunity to shipping an Amazon and monitoring crops and finding missing people.
Driverless cars are having their ups and downs. But there's clearly a trend to make transportation easier, cheaper and more effective for the whole country. And the mirror that looks inside you. Sounds a little creepy, but in fact, it's actually a technology that is being developed to enable a Web-based camera to monitor your cardiovascular health when you stand in front of it. There's tremendous innovation taking place all around us, and that is what the opportunity is for an investor.
Using the right headlines helps you reset your perspective. As I alluded a minute ago, the markets have good long term returns with the S&P being up over 10% over the last 30 years. But the average investor in the S&P is holding up less than half of that. And why the difference? How can an investment outperform the person who owns it?
Behavior. The average equity investor doesn't stay invested. The average investor buys high when they feel comfortable and they sell when they feel uncomfortable and it's low. Panic causes people to take money out of stocks, even though they're still going up and move it into bonds right before they start to go down. So pay attention to the headlines that you look at, have the right perspective.
And ultimately, we like to advocate, consult with your advisor. Your advisor can help you stay focused on the results of your plan and not just the returns of market prices this week or this month or this year. Many investors get tempted to go it alone when things are positive. But a professional adviser has the training, the expertise and the experience to give you perspective and help you avoid impulsive decisions.
Oftentimes, professional advisors help protect you not from the market, but from yourself. The market will do what it will do. But as I believe Sir John Templeton once said, investors are far more effective at destroying their wealth than the markets ever will be. Keep focused on the long term.
And so as we wrap up be aware of your own emotional state and the anxiety. Be aware of how what the news media and your exposure to it is causing you to think about. Pay attention to the decisions that you're tempted to make as a result of that and ask for advice on if you're about to make a mistake.
As we wrap up here, I just want to take a final minute and make sure that you understand the market has the ability to grow your wealth despite reception recessions and through bear markets so you can avoid panic decisions when the next crisis du jour hits.
If you have any questions, feel free to reach out to us by phone, by email. We're always here to help. And again, I want to thank you for taking the time to listen to us today.
