How Your Distorted Worldview Hurts Your Portfolio

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To be a successful investor, you have to maintain some optimism about the future.

(Otherwise, why risk your hard-earned capital, right?)

Too many investors miss opportunities because they don’t appreciate – or even recognize – the vast improvements in our quality of life and the state of the nation.

A new NBC News/Wall Street Journal poll reveals that 7 out of 10 Americans believe the country is “on the wrong track.”

This is nothing new, incidentally.

According to Gallup, the last time the majority of Americans expressed satisfaction with the way things were going in the U.S. was January 2004.

In my last column, I discussed various ways our lives are getting better, from longer life expectancies to higher standards of living to record-high incomes and household net worth.

I pointed to six reasons for the disconnect between people’s perceptions and the actual state of the world…

But I saved the seventh – and biggest – for last: media bias.

This is hardly a new topic, of course. Yet most of these discussions focus almost entirely on political bias.

Conservatives often complain about left-wing bias in The New York Times and Huffington Post. Liberals seem equally disturbed about right-wing bias at Fox News and Breitbart.

But there is a far greater and more pervasive prejudice in news reporting that transcends politics: negativity bias.

Only those things considered sad, tragic, frightening, corrupt or downright evil are generally considered newsworthy. (Hence the old media truism “If it bleeds, it leads.”)

Part of this is due to the nature of what can reasonably be considered news.

Few people want to hear about the buildings that didn’t burn, the crops that didn’t fail, the planes that didn’t crash or the surfers who didn’t get bitten by a shark.

Most of us live fairly uneventful daily lives of relative peace and prosperity.

And most good things are the result of processes – like free markets and capable but limited governance – that deliver incremental improvements over time.

“Incremental improvements” are not news.

And it’s the exceptions – especially the glaring ones – that grab the headlines and airtime.

Advances in technology are another reason for the downbeat news coverage.

Today’s satellites beam vivid and heartrending images into your home from every corner of the planet.

Anyone with a smartphone can take eyewitness photos and videos, becoming an immediate crime reporter or war correspondent.

As a result, we get the most depressing news from the most hapless people in the most unfortunate places 24 hours a day, seven days a week.

This distorts our perspective and makes it easy to believe we live in a horrible world at a terrible time, and life really is just one damned thing after another.

Still another reason for all the negativity is the media’s long history – beginning with muckrakers like Upton Sinclair and Lincoln Steffens more than a century ago – of seeing itself as the national social critic and cultural conscience.

(This can go too far, however, especially when facts and events are reported out of context.)

But the greatest reason for the negativity bias is one that capitalists like us have no problem understanding.

The media is made up of for-profit corporations that exist to create high returns for shareholders or private owners.

The revenue that creates those profits is primarily advertising.

That means media outlets large and small are engaged in a furious competition to grab our attention, thereby attracting bigger and higher-paying advertisers.

What is the best way to capture more clicks and eyeballs? Negative, dramatic and sensationalized stories.

It works. (Who can resist teasers for the late-night news like “A plane crash today in Albemarle County. Details at 11” or “What’s in your tap water that you need to know about.”)

No wonder polls show that people’s trust in the media is at its lowest ever (exceeded only by their distrust of Congress).

Yet even when we don’t trust, we can’t avoid it.

The only way you know what’s happening in the world – outside your own experiences and those of the people closest to you – is through media reports.

Yet that news is delivered through a prism of exaggerated negativity.

Don’t get me wrong. I’m not suggesting that we don’t have real problems or that people in certain places aren’t suffering.

But the unwarranted barrage of negativity doesn’t result in a better-informed populace.

Polls show, for instance, that most Americans believe gun violence is rising, air and water quality are getting worse, and the middle class is vanishing.

None of these things is even remotely true.

As Harvard psychologist Steven Pinker wrote last year in The Guardian, “Consumers of negative news, not surprisingly, become glum: a recent literature review cited ‘misperception of risk, anxiety, lower mood levels, learned helplessness, contempt and hostility towards others, desensitization and in some cases… complete avoidance of the news.’”

This relentless negativity has unintended consequences. And nowhere is this truer than in the investment arena.

In my next column, I’ll explain what you can do to counteract media bias… and boost your portfolio’s returns.

Good investing,

Alex

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