Three Simple Steps to Superior Investing

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Polls show that the vast majority of Americans have hardly benefited from the tremendous bull market of the last 10 years.


For some it’s lack of money… or knowledge.

But for those with both the money and sense to invest, it’s often because they hold an unduly pessimistic view of the world.

You can blame the mainstream media for this.

A recent study revealed, for instance, that approximately 90% of the articles in The Washington Post have a negative slant.

This is nothing unique to the Post. You’ll find a persistent negativity bias in virtually every major newspaper, magazine and news channel.

Most of us are so accustomed to it we don’t even realize it.

For example, here’s a February 1 news article from The New York Times titled “Fears Grow as Italy Enters Recession”:

Italy has officially slipped into recession, and Europe as a whole is essentially at an economic standstill, raising anxieties that the world is on the verge of a significant slowdown.

The timing could not be worse. The lousy performance of the Italian economy, reported on Thursday, is likely to aggravate relations between the European Commission and Italy’s populist government, which has pursued spending policies widely regarded as irresponsible. Leaders on the Continent are already dealing with Britain’s messy exit from the European Union.

At the same time, China’s economy is slowing, in part because of President Trump’s trade war. The data published Thursday by official statistics agencies provided a glimpse of just how intertwined China and Europe have become, and how vulnerable that leaves the eurozone. This weakness, in turn, adds to risks facing the United States, which is Europe’s top trading partner.

In Italy, the government’s debt load is one of the highest in the world. A prolonged economic slump would significantly add to the risk of default, with global repercussions.

The European Central Bank has in the past come to the rescue of Europe, and Italy in particular, but it has less scope to do so now. The bank is scaling back its purchases of government bonds, a stimulus measure that helped ensure there were buyers for Italian government debt…

And so on… and so on. The article continues without a single caveat or offsetting positive note.

Reading stuff like this – as we all do every day – almost makes me wish I were one of those permabears who continually forecast a coming currency collapse, economic depression or market crash.

How easy it must be. After all, the mainstream media have already done all the due diligence and teed up the relevant facts.

Or have they? Let’s stop and think about this.

The 10-year Italian government bond currently yields less than 2.8%, about the same as a similar U.S. government bond.

According to Tradeweb, nearly $4 billion changes hands in the Italian bond markets each day.

Are we really to believe that tens of thousands of rational, self-interested investors are plunking their hard-earned capital into 10-year bonds with a measly 2.8% yield and a high risk of default?

Yet if fixed income investors aren’t stupid or crazy (or both), something is missing from that New York Times piece and others like it.

That something is the realization that even serious problems have potential solutions – or at least acceptable trade-offs.

My point here is not to argue that Italy will never drop out of the eurozone or default on its euro-denominated bonds. That’s a possibility, especially given the country’s growing populist sentiment.

But the bond market reveals the smart money doesn’t believe that is a high probability right now… while the New York Times article leads the reader to conclude it’s almost inevitable. (Along with a lot of other nasty consequences.)

This is just one article on a single subject. But it’s entirely typical of the way the mainstream media treat economic and financial news.

That’s why I challenge you to approach everything you read and hear with a deep sense of skepticism – and a few basic questions like these:

  1. Is this story based on facts… or opinions?
  2. Does it include counterbalancing facts or just hand-picked, one-sided ones?
  3. Has the journalist made a reasonable effort to tell multiple sides of the story?
  4. And – most importantly – could this narrative be overly pessimistic?

If you’re going to invest money you’ve earned, paid taxes on and saved instead of spent, you need to feel some sense of optimism about the future.

That’s a tall order for people who consume the daily litany of all the sad, tragic or unfortunate events happening – or that could happen – in politics, economics and business.

Studies show even highly educated individuals who watch cable news or read national newspapers hold worldviews that are unduly pessimistic.

If you kick yourself because you’ve been underinvested in a stock market that – with dividends reinvested – has more than quadrupled in the last 10 years, recognize that your failure to take advantage of these opportunities is due, at least in part, to a saturation of news coverage that is not just negative but perversely so.

Given that investors need to know what is happening in the world and the media – for reasons I explained in my last column – will not change, what do you do?

The answer is threefold:

  1. Recognize “the daily news” as negatively biased rather than objective.
  2. Watch and read less of it to avoid becoming unduly anxious or fearful.
  3. And most importantly, follow the trend lines not the headlines.

How does following the trend lines boost your investment returns?

That’s exactly what we’ll discuss in next Friday’s column.

Good investing,


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