Negative Superlatives and Market Drops
Almost any global happening can spur you to sell investment positions or put off investing new dollars. But remember: the headlines are just to sell newspapers (or digital ads). You must keep a level head when the market goes up and when it goes down. Because it’s going to do both.
The latest news is just that – the latest news.
Headlines are Designed to Sell the News
Domestic and global social unrest can influence market sentiment. Political news stories can be shocking and unfortunate but are not usually detrimental to investment markets.
Natural disasters such as hurricanes, earthquakes, blizzards, or tornadoes sadly damage a big geographical area, but only nominally influence Wall Street’s direction.
Consider this point made by the Guardian:
“Plane crashes always make the news, but car crashes, which kill far more people, almost never do. Not surprisingly, many people have a fear of flying, but almost no one has a fear of driving. People rank tornadoes (which kill about 50 Americans a year) as a more common cause of death than asthma (which kills more than 4,000 Americans a year), presumably because tornadoes make for better television.”
Outbrain released a study that confirmed what we all really knew: “negative superlatives” work in the news business. The words “Never,” “Bad” or “Worst” are so much better for ad-click-through rates, circulation, and ratings compared to the gentler, happier words like “Always” and “Best.”
In fact, Outbrain reported that “negative superlatives” work 30% better at getting your attention than positive ones. The average click-through rate on headlines with negative superlatives was a staggering 63% higher than that of their positive counterparts.
Your Takeaways
Here are some things to remember, no matter the direction of the stock market or the preponderance of negative superlatives:
- The stock market is not always such a smooth ride.
- Any investor can fall for recency bias, the bad habit of assuming that recent financial trends will continue as well.
- Trends are dangerous illusions when it comes to investing.
- Don’t let this negative superlative atmosphere make you more susceptible to freak out when the inevitable and brief instability comes along.
- Remind yourself that you invest for long-term results and that volatility is as short-term as it is headline-grabbing.
As Carl Richards points out in his book The One-Page Financial Plan, no skydiver tries to figure out how a parachute works after jumping out of a plane.
Sooner or later, bad news will rock the market.
Restrain your panic, and your long-term investment results are likely to be anything but bad news.