By Charles Tumlin
A recent article at AdvisorOne suggests that CNBC is detrimental to the well-being of investors. In truth, it didn’t really single out CNBC. It was applicable to any steady diet of financial news. Here’s what the article had to say about financial news and investor stress: Clients get stressed by things you wouldn’t predict. This is a classic example, uncovered at the Kansas State University (KSU) Financial Planning Research Center by Dr. Sonya Britt of KSU and Dr. John Grable, now at the University of Georgia, in their recent paper “Financial News and Client Stress.” They found that contrary to what you might think, investor stress goes up when watching financial news, and hearing that the market went up causes stress levels to rise even higher. “Specifically, 67% of people watching four minutes of CNBC, Bloomberg, Fox Business News and CNN showed increased stress, while 75% of those who watched a positive-only news video exhibited an increase in stress,” they wrote.
Why? “Financial news was found to increase stress levels, particularly among men,” wrote Grable and Britt. Surprisingly, positive financial news, like reports of bullishness in the stock market, created the highest levels of stress, they found, suggesting that positive financial news may trigger regret among some people. The authors referred to previous studies of regret that found “people tend to feel most remorseful when they look back at a situation and realize that they failed to take action.”
Surprising, isn’t it, to find out that investors were stressed even when the market was going up? The ups and downs of the market appear to elicit investor’s concerns about their financial decisions. Anything that undermines their confidence is probably not a positive. In fact, one of the important things advisors can do is help clients manage their investment behavior. Financial news appears to work at cross-purposes to that. (Other things do too; the full article has a host of useful thoughts on what stresses clients and how to reduce client stress.)
The relationship between high levels of stress and poor decision-making is well-known to psychologists, researchers and sports fans around the world. “Our brains operate on different levels, depending on circumstances,” Britt claimed in an interview. “Under high levels of stress, our intellectual decisionmaking functions shut down, and our emotional flight or fight response kicks in.” Added Grable: “People will adapt to low levels of stress differently, but overwhelming stress results in predictable behavior. When we are stressed, our brains cannot move to make intellectual decisions.”
A valuable characteristic that comes along with our Relative Strength methodology is objectivity. While the ability to make rules-based investment decisions is easier said than done, it is what allows us to “stay the course” and leads to long term outperformance. In his book, What Works on Wall Street, James O’Shaugnessy found, “The only way to beat the market over the long term is to use sensible investment strategies consistently…The lack of discipline devastates long-term performance.”
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Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss. You should consider this strategy’s investment objectives, risks, charges and expenses before investing. The examples and information presented do not take into consideration commissions, tax implications, or other transaction costs. Diversification does not guarantee profit or protect against loss in declining markets. Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns. Wells Fargo Advisors, LLC did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Wells Fargo Advisors is the trade name used by two separate registered broker-dealers:This article was written by Charles Tumlin, Wells Fargo Advisors, Beaufort, S.C. The views expressed by Charles Tumlin are his own and do not necessarily reflect the opinion of Wells Fargo Advisors, LLC or its affiliates. Investments in securities and insurance products are: NOT FDIC INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE. Wells Fargo Advisors, LLC, Member SIPC, is a registered broker-dealer and a separate non-bank affiliate of Wells Fargo Company.