It may sometimes feel very scary for investors when news outlets spew out a constant stream of worrying news. I have to admit that I used to get fixated on numerous concerns about how the state of the world, commodity prices, threats of war, and other events may affect my investments. It’s a legitimate concern, for sure — but let’s put things in perspective.
Bad news is more sensational and attracts viewership
Investors should remember that bad news is certainly more riveting than good news, so reporters and newscasters will do everything they can to write headlines that grab attention. Even on an ordinary day, while flipping through the newspapers, there is far less reporting of “normal, good news” (scientific discoveries, family assistance, and the like) than “bad, sensational news” (disasters, crimes, etc.). This happens in business news as well since reporting on a company that’s steadily chugging along and quietly growing its business makes for really bland reading.
Negative events may have limited impact
A second thing to note is that negative events may not necessarily have an adverse impact on the investments we hold. A lot depends on the nature and severity of the supposed “bad news.” Macro-economic news tends to have a wide impact on almost every aspect of life, therefore investors should let such news slide off like water off a duck’s back. Even if there is specific bad news relating to a company or industry, companies should have the expertise and resources to react to it, which brings me to my next point.
Companies are resilient and are able to react and adapt
Most companies don’t allow themselves to be sitting ducks while changes swirl around them. If we’ve invested in companies that are progressive, dynamic, and forward-looking, they should be able to react to negative changes early on and adapt their business models or practices accordingly. After all, whatever made these companies great in the first place should continue to do so, unless there is a reason to believe the investment thesis is flawed or irrelevant.
Missing out on compounding
Finally, if an investor gets scared off of investing, he’ll find himself missing out on the benefits of compounding over the long term. This compounding happens over years and allows the investor to amass significant wealth over time, provided he is disciplined and consistent. By staying out of the market, we effectively deprive ourselves of this long-term benefit and will find it much tougher to grow our wealth.
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