Extra! Extra! Read All About It!

I love watching old movies where there is a young kid shouting at passersby to get a copy of the local paper.   The young entrepreneur is standing on a busy street corner with stacks of newspapers highlighting the most important news printed above the fold.  Hey mister, “Did you hear about…”

In the old days, it took time for news to travel around the globe.  Pre-internet our news moved by radio, TV and newspaper.  Today, news is instantaneous and delivered through billions of personal and professional outlets.  The news is broadcasted and viewed in real time regardless of its origin.

Headline risk can move a market.  A news story can move the stock market up or down, sometimes violently.  Headline risk can be applied to the entire market or to a single company. 

Headline risk is becoming white noise especially when it comes to terrorist activity.  Yesterday there were terrorist attacks in Berlin, Ankara and Zurich and the market didn’t budge.  We’re becoming immune to terrorist activity, unfortunately.  

A new component to headline risk is fake news.  Fake news is on the rise and has a higher probability of going viral when compared to real news.[1]

How should you approach headline risk?  Here are a few suggestions:

·         If you own a stock getting thumped by a news story, check the source.  Look to sites you trust to verify if the news is true.  If the story is true, reevaluate the reasons why you bought the stock.  Should you buy or sell based on the facts? Is the news material and will it have a permanent impact on your investment? 

·         Don’t react.  Wait for the news story to run its course and the volatility to pass.  Most investors overreact to news stories and it’s possible your investment will recover from the selloff.

·         If the entire market is being dragged down by a news story, use it as an opportunity to add to your stock holdings.  Headline risk is usually short lived.

As the world becomes smaller and more connected take a moment to disconnect.  Stocks should be bought for the long haul so don’t get trapped by short term headlines.  

An honest witness does not deceive, but a false witness pours out lies. ~ Proverbs 14:5

Bill Parrott is the President and CEO of Parrott Wealth Management. www.parrottwealth.com

December 20, 2016

[1] http://www.vox.com/2016/11/16/13626318/viral-fake-news-on-facebook, Aja Romano, November 16, 2016.