Do Headlines And News Help You Invest Better?

Probably not. At least not if you want to grow your money safely.

Take a look at the following headlines from March 2003:

• US car sales in February fell 41% to a 9.1 million annual rate, Bloomberg
• ADP reported that companies cut an estimated 697,000 workers in February. , Bloomberg
• Report: 20% of Home Mortgages Were Underwater in December, WSJ
• AIG still facing huge credit losses, Financial Times

These headlines were all published in the first week of March 2009. If you read news like that and based your investments on those reports, you’d probably run for the hills. Agreed? Well, if you did that, you’d be extremely sorry. Take a look at what the market did despite all the bad news:

As you can see the market rewarded investors just when it looked like the end of all things financial.  Of course this is just one example – but it’s an important one.  2008 – 2009 was an extreme situation.  But extreme situation are those most likely to push investors to their limits and that’s why they are so dangerous.

Am I suggesting you should ignore what’s happening in the investment world or that you should always invest when the headlines turn south? Not at all Mon Ami.

Headlines and news stories are important but not nearly as important as your overall investment approach. Personally, I follow the market and look for technical signs of strength or weakness and allow that data to inform my decisions. The news and headlines are not part of that equation. You may follow an approach like that or use another method.

Whatever system you rely on to make investments please don’t allow news stories and headlines to overpower and commandeer your investment strategy. This goes for good and bad news alike. Don’t allow your fear or your greed to take over the mother ship. If you do, chances are good your landing won’t be pretty.

Do you invest based on the news? How? And how has it worked out for you?