Pimp Your Finances

We’re turning into a nation of whimpering slaves to fear – fear of war, fear of poverty, fear of random terrorism, fear of getting down-sized or fired because of the plunging economy, fear of getting evicted for bad debts…

- Hunter S. Thompson, 2003

One thing that’s always bugged me about the media is how they pretend to be impartial observers, when the reality of it is that there is no way to observe something without interfering.

It’s physically impossible, even on a sub-atomic level. With the stock market, the stories that the media covers – and how they cover them - affects how investors behave.

The media loves to cover a sob story or train wreck, and they’ve been doing it to perfection with the economy. Fear gives them higher ratings than practical advice, so they resort to scare tactics.

Take a recent headline I saw on CNN on Friday, February 20th.

WALL STREET ON THE SKIDS

It was even accompanied by a live report from the floor of the NYSE. With a headline so shocking, you’d expect that the market was bottoming out.  But you’d be wrong.

The market was only down 129 points, which would have represented a decline of 1.73% from the previous day’s close. But why did CNN have the shocking headline? Is a drop of 1.73% unusual?

Not at all.

Over the past year, the average daily change in the market has been 1.71%.

In fact, 37.2% of the previous year’s trading days had a swing that was greater than what CNN was reporting on with doom and gloom. 13% actually had a change that was more than double what CNN was covering live.

(source: data from Yahoo Finance and my love of spreadsheets)

The take away? Don’t believe the hype. Make your decisions because you’ve done the math and thought about the consequences. Not because you’re reacting to a talking point, or some angry screaming haircut on TV told you to “SELL SELL SELL”.

I’m going to end this with another Hunter S. Thompson quote, because one is never enough. The man was a genius, and believed in never quitting – especially when “the establishment” gets you down. Here’s a quote from one of my favorite books, “Fear and Loathing in Las Vegas”, that shows his view on persistence in the face of fear.

“I hate to say this,” said my attorney…”but this place is getting to me. I think I’m getting the Fear.”

“Nonsense,” I said. “We came out here to find the American Dream, and now that we’re right in the main vortex you want to quit.” I grabbed his bicep and squeezed. “You must realize,” I said, “that we’ve found the main nerve.”

“I know,” he said. “That’s what gives me the Fear…”

“It won’t stop,” I said. “It’s not ever going to stop.”