Friday, July 5, 2013

Fear vs. Reality Based Investing - July 5, 2013 - Zacks.com

End of America

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Up to 308,127,404 Americans Could Be in Serious Trouble


This is just a sample of the commentary headlines and marketing messages I've recently received from around the investment world. And it's the same basic formula these folks have been pitching since the Great Recession started in 2008.

As they say "Fear Sells".

The problem is that fear doesn't always produce the best results for your investment portfolio. That's because the economy and stock market started rebounding back in March 2009. Since then the S&P 500 has more than doubled, making new all time highs this year.

Those following the ill-advised fear-based messages have not enjoyed any of the benefit of the very real economic recovery and rise of stock prices. Unfortunately those peddling the fear did benefit by getting you to buy more of their subscription services.

What is an investor to do?

I have a couple pieces of advice that should help you going forward.


Ferret Out the Fear Mongers

The investment landscape is often a difficult one to read given the multitude of things one has to consider (economy, politics, world events, earnings, valuations etc). That is why there are such diverse opinions on where stocks are headed next.

However, some commentators have a natural bias to be more optimistic or pessimistic no matter what is happening in the real world. In knowing their motivations, you will be better able to interpret the value of their message.

As for the fear mongering types who produce headlines like those shared above, their bias is simple. They will do or say whatever it takes for you to buy a subscription to their services. These people cannot be trusted.

Note, there is a difference between an article that has a bearish opinion and one that is trying to scare your pants off. Whenever you discover a writer or an organization that tends towards those fear based approaches, it is best to write them off immediately as charlatans, since they only have THEIR best interest in mind. Not yours.

More . . .


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And Some People Are Too Optimistic

On the other hand, brokerage firms and money managers tend to be overly optimistic. Why? Because if their market outlook scares you, then you will move more of your investments to cash. And simply cash accounts pay them less management and commission fees than you being in stocks and bonds. That is a clear motivator for them to provide a rosier outlook than what they may truly believe will happen.

The key with them is to read between the lines. If you hear any hint of doubt or concern about the future, then magnify that concern to understand what they are truly saying.


The Truth Lies in the Middle

Consider this example as your recipe for how to balance the extreme and diverse investment viewpoints thrown your way every day.

I have two daughters: Sarah (13 years old) and Mandy (11). In general, they get along pretty well. Yet every now and then they get into a nasty fight that needs to be officiated by an adult.

Of course their stories don't match. But I find that neither one is truly dishonest. They just have different ways of looking at things. So in most cases the truth lies in the middle.

And there you have it. We as investors need to take in multiple viewpoints. We then need to throw out the most bearish views and the most bullish. Somewhere in between is the answer that will best chart our course for investment success.


One Way to Get Multiple Viewpoints

We here at Zacks cherish the independent insight of our many commentators. And by getting the full unfiltered view from each of these folks (bullish and bearish), you will come to the best conclusions on how to invest your money.

And the best way to get their full view on the market and their specific trades to profit in this environment is to have full access to all the subscription services at Zacks.

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Best,

Steve Reitmeister

Steve is the Executive VP in charge of Zacks.com and all of its subscription services. His personal mission is to help investors achieve life-changing investment success by harnessing the power of earnings estimate revisions. Over the years, he has developed a full array of services to help investors do just that. Get all of these services now at an unprecedented savings. Learn more about Zacks Ultimate trial.

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Source: http://www.zacks.com/stock/news/103106/fear-vs-reality-based-investing

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