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Posted by on Jun 12, 2015 in ETF Strategist, Investment Perspective

Don’t Follow The News? More Like Don’t Overreact To The News

Don’t Follow The News? More Like Don’t Overreact To The News

By Roger Nusbaum, AdvisorShares ETF Strategist

 
Tadas Viskanta has a great blog post up titled Make More By Doing (and listening) Less. The general tone of the article is the extent to which investors too frequently are influenced by stock market media enough that they make changes to their portfolio that end up being the wrong thing to have done. An additional bigger point made is that people are generally better off doing less in their portfolios not more. This is in line with an idea we have discussed here many times which is that if you go along with the market and have an adequate savings rate you have a good chance of having enough for your financial goal which presumably is retirement.

This idea is not meant to ignore suitable asset allocation but to have the building block of how equity markets tend to work, they go up most of the time and every so often they go down a lot and scare the hell out of lot of people. From there an investor or advisor can employ some sort of strategy they believe will add value to their portfolio in whatever manner they believe is appropriate and over whatever period of time they find relevant. I personally believe in using individual stocks and ETFs, trying to increase the portfolio’s yield a little, maintain global diversification and take defensive action when risks of a large decline appear to increase. You, reading this likely have your own thoughts on how value might be added to a portfolio.

Chances are that whatever your philosophy on investing (so investing, not trading), an earnings report from a small cap social media company or the subsequent discussion about those earnings on stock market television does not play into that philosophy. Tadas’ point is in part that it can be easy to be compelled to stray out of your lane by what sounds like a good story or to get scared out of something in front of what turns out to be a 2% dip that a month from now won’t be visible in a chart.

However this is different for an advisor. Although they probably should, the typical advisory client is probably not reading Tadas’ blog and they are prone to reacting to all sorts of news. We all have things we react to, that is ok so the conversation then becomes about having the self-awareness to know you’re a sucker for a good story or prone to over react to bad news or something else.

For the do-it-yourselfer it probably is a good idea to avoid media that leans sensational but I do believe in knowing what is going on in the world. Maybe this means avoiding most stocks market television as well as taking control of what you’re vulnerabilities are. Advisors though need to be able to address questions that come up from clients.

It is reasonable for clients to ask about anything, it’s their money and part of what they are paying for is the occasional hand holding in the form of understanding a news event (will rising rates hurt my portfolio or what happens if Greece goes under) and being able to explain whether it is or is not important and whether or not it impacts the strategy. This is harder to do for an advisor who consumes no news. Some will be able to have an effective dialogue with their client in this context without actually knowing the story but it is more difficult to do.

Additionally while an advisor is presumably all in on whatever strategy the deploy for clients there are market environments where their strategy will struggle versus whatever their clients are seeing and hearing about from their friends and picking your head up and looking around occasionally is a way to address these conversations more easily as well.

I would say as opposed to not following the news, it might be better to train yourself to not overreact to the news.

david@mediaworksllc.com

The AlphaBaskets blog provides frequent market insight and commentary by AdvisorShares Investments, LLC, created by AdvisorShares and other leading active managers.  AdvisorShares Investments is an SEC-registered investment adviser and the investment adviser to the AdvisorShares actively managed ETFs. The views expressed on AlphaBaskets should not be taken as investment advice or a recommendation for any of the actively managed ETFs advised by AdvisorShares.

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