The Coronavirus outbreak is causing panic worldwide and almost everywhere investors look, the headlines seem daunting when it comes to the epidemic and their portfolios.
What is an investor to do amid these circumstances?
First and foremost, everyone must understand the incentives of the news outlets pumping out these headlines. They are attempting to sell advertising.
So why is it that bad news seems to dominate the headlines? Marc Trussler and Stuart Soroka, set up an experiment that they published in 2014.
The researchers present their experiment as solid evidence of a so called “negativity bias” – psychologists’ term for our collective hunger to hear, and remember bad news.
It turns out that there’s real evidence that people respond quicker to negative words.
In lab experiments, flash the word “cancer”, “bomb” or “war” up at someone and they can hit a button in response quicker than if that word is “baby”, “smile” or “fun” (despite these pleasant words being slightly more common).
Perspective is imperative when it comes to your portfolio and your future.
So, when you see headlines like this:
REMEMBER charts like this:
News hype and horror tend to be noisy/distracting and not relevant to the long-term success of your portfolio. “If it bleeds, it leads!”
Panic is more likely to make your portfolio sick than a widespread epidemic.
People and markets have overcome great epidemics in the past and there is no reason to think that they won’t do so going forward. We’ve been here before.
Stay calm and stay the course.