October 10, 2013 | Posted in:Investing

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stock market crisis overYesterday morning in a dentist’s office reception area, I was left alone with my thoughts, and a great book that I had been looking forward to reading — BUT – they had their TV turned on and  it was blasting a morning news program.

I tried to ignore it, and just read my book, but no matter how I sat I couldn’t plug my ears enough to allow my brain to focus on the pages. Against my better judgment I decided to watch the program, and see what was going on in the world (more like “what wasn’t going on in Washington”).

What I witnessed was truly disturbing. They had a giant running countdown until the deadline that Congress has to make a decision over the debt ceiling. Literally all of the news centered around the Washington impasse.

So they brought in a correspondent via satellite with whom they were probing for facts about the government shutdown, the debt ceiling, and what it all meant to the job market, the stock market etc.

My attention piques any time people start talking about money.

This well-dressed, well-groomed, yet almost frantic reporter brought up the fact that American’s 401k’s have been and are currently “under attack”. She made it abundantly clear that the stock market is failing, and people are losing money.

A giant red down arrow appeared on the screen, while she stated that the Dow Jones Industrial Average dropped about 159 points on Tuesday, or 1%. She was doing a tragic “the end is coming” segment all because the stock market dropped one single percentage point in a day.

Yeah, no shit 401ks are under attack. If you scare people who don’t really know any better, what do you think they’re going to do? They’re going to panic, and start selling their investments. They don’t know that the stock market loses 1%, 2% and occasionally 3% on any given day, during any given week.

It’s what she didn’t report that I find to be the most disturbing thing of all: she didn’t say that the markets would probably be fine after the gridlock in Washington ended.

And guess what! The market went up over 2% today!

In my mind, if you’re a news station, and you allow these types of garbage scare tactics to air, then you lose your credibility as a valid newsource.

Let’s put this week’s stock market movement into perspective. We can assess the ‘damage’ done to your portfolio this week based on a $25k, $500k, and a $1M starting balance.

Starting balance invested in VTSAX (Vanguard Total Stock Market)$25,000$500,000$1,000,000
Friday - stocks are up, life is good$25,181$503,639$1,007,278
Monday - political bullshit starts/continues$24,958$499,176$998,352
Tuesday - fuck! sell everything! the sky is falling! save the children!$24,624$492,484$984,969
Wednesday - wait.. that wasn't so bad$24,612$492,249$984,499
Thursday...and we're back$25,164$503,285$1,006,570
5-day change+$164+$3,285+$6,570

THIS IS WHAT YOU WERE SCARING PEOPLE OVER!?!

I call this the Stock Market Crisis Syndrome. It’s when analysts look at one single day, one week, even one month of market losses, and they interpret their readings to the layperson in the most chaotic, foreboding way possible. 9 times out of 10 they’ll bring up either the Great Recession or Depression for contextual reference. These people are analysts, they should know the most about the markets, but they allow themselves to be victims and purveyors of the Syndrome.

The stock market is a bit of a roller coaster. It goes down a little. It goes up a little. It goes down a lot. Then it bounces right back. And then some. That’s how it works. You don’t need any bullshit reporters or “experts” exacerbating the situation. Especially when they are reporting out of fear because they personally are afraid of the political turmoil that may be happening at any given time.

The average young family has a little less than $25,000 stashed away for retirement. This past week they lost less than $400 of their nest egg. Oh, wait, no they didn’t. By market close on Thursday, they actually gained $164 over the 5-day session.

Even the Million Dollar portfolio, at it’s lowest point was only down about $5k. Does that sound like a Crisis to you?

Who even really cares what the stock market did in one single week? Who pays attention to what the stock market is doing in the first place? That goes against the basic principles of Advanced Living. Market investments are to be kept for decades before being used. Market charts, analysis and psychobabble should be ignored by investors at all costs, and I’m not talking about the suits on Wall Street, I’m talking about you and I.

There will always be some type of political stagnation/gridlock/debate going on that will either spur the markets or force them to retract. That’s life. That’s the stock market.

We should be investing in the market whether it’s up, down or stale. We should understand that the money we’re temporarily letting go of is in the hands of the market gods, which could mean dealing with serious short-term losses.  But the gods are good, because the markets always bounce back.

To this day, and far beyond, the market will continue to reach record highs. And if we don’t allow the media to affect our judgment, and we hold on to our investments for the long-haul, and we keep pumping money into them even when the markets are depressed — especially when the markets are depressed — we will end up way ahead.

The next time you want financial advice, do yourself a favor and turn the squawk-box off. Unless you’d rather get an earful of Stock Market Crisis Syndrome, or it’s equally dubious brother Stock Market Sensationalism Syndrome.  In short, don’t let reporters convince you to sell your portfolio every time you lose a few hundred bucks.

If you’d rather be prepared, and learn pretty much everything you’d ever need to know about the market check out this page.

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28 Comments

  1. Kurt
    October 11, 2013

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    I think a good first rule of investing may be: turn off the TV and instead read a couple of investing classics.

    • Johnny Moneyseed
      October 21, 2013

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      A Random Walk Down Wall Street is a great one, for example.

  2. Brian
    October 11, 2013

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    I seriously cannot stand the news lately. First off, CNN and Fox News just love their countdowns. Countdown to disaster, countdown to default, blah blah blah.

    And then all this nonsense about the end of the world with the stock market. I mean, I get it, people are scared. Sometimes I get nervous too. But you know what? Honestly, I wouldn’t mind if the market went down a bit. I’d love for the opportunity to buy great stocks at bargain prices like back in 2008. Opportunities like that don’t come along too often. If only more people realized that the market goes up and goes down and in the long run, it will pretty much always go up.

    Sorry for the rant, the news lately just kills me!

    • Johnny Moneyseed
      October 21, 2013

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      You don’t have to apologize for ranting. I’m pretty sure this post itself was a rant.

      I totally agree with you, and would love to see another stock market sale but without all the doom and gloom bullshit news that would certainly come with it.

  3. Dollar Flipper
    October 11, 2013

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    Couldn’t agree more. They’re not in the business to report news. They are in the business of selling advertising spots. Now I use my ~1 year old daughter as an excuse as to why we would like the tv off when visiting friends! Otherwise it would be non-stop headline news with constant emergencies, crises, and over-exaggeration.

    • Mrs. Moneyseed
      October 11, 2013

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      Oh wow! That is an awesome idea. Why haven’t I thought of that before!? I will be using this excuse in the future, for sure!

  4. Matt Becker
    October 11, 2013

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    I absolutely hate this kind of reporting. I think most people should almost completely ignore the new because this kind of garbage dominates the air. The whole daily reporting of stock market returns is worse than meaningless, it’s incredibly harmful to the future of the public. No wonder people are generally terrible investors.

    • Johnny Moneyseed
      October 22, 2013

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      I hate the fact that the big news outlets have stock tickers constantly scrolling the daily percentage changes. Why are we breeding short term thinkers? Who gives a shit about what happens to the market in a day?

      Instead, how about they update it daily to show how the market has fared over the past year. It would be way more exciting to see +24.19%, which is the exact return of the US Markets over the past year.

      http://news.morningstar.com/index/indexReturn.html

  5. jlcollinsnh
    October 11, 2013

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    Hi Johnny….

    Exactly!

    Even in a genuine bear market or crash what you describe plays out. Just over a few months or years.

    Interestingly, I made our Roth contributions this week and, by sheer luck, hit the Wednesday low. Ha!

    Thanks for the link to my stock series. This post of yours reminded me on one I should have, and now have, included:

    http://jlcollinsnh.com/2013/01/04/how-to-be-a-stock-market-guru-and-get-on-msnbc/

    Just added is a link to your post here.

    Oh, and once this crises plays out, there’ll be another to take its place. And another after that. And….

  6. Derek
    October 11, 2013

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    The news is just the worst.

  7. Robb
    October 11, 2013

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    I stopped watching the news altogether years ago, and I’m sure I lead a happier life because of it. Besides getting you to make poor decisions based on emotion rather than rational fact, all that angst is bound to make you miserable.

  8. Green Money Stream
    October 11, 2013

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    If you are investing in the market long-term (which is what we should be doing) then you can ignore the noise of the “news-entertainment” channels. Stick to your investing plan in good times and bad and you will do fine. Thanks for the post!

    • Johnny Moneyseed
      October 22, 2013

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      GMS — This is great advice. In fact, we should remove the noise of all of the channels, and stop watching TV altogether; then we can re-focus our time by reading finance blogs, which would in turn make everyone in America much happier.

  9. Laurie
    October 12, 2013

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    Typical media hype, which is why, by and large, I try and stay away from the news reports. Very rarely do they serve the general public any good. Great post, Johnny!

  10. Slackerjo
    October 12, 2013

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    Wait, you were READING A BOOK? Not zoned out with a smart phone :-

    So what I am saying:

    pages = better
    screens = bad

    • Johnny Moneyseed
      October 22, 2013

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      The only screens that are good are Kindle screens, but I actually had a no-shit physical paperback book in my hands. Not a very common sight in public.

      • Justin
        October 22, 2013

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        Glad I’m not the only one still reading old school style. Hard copy 4eva!

  11. Jon
    October 12, 2013

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    The goal is to get you emotionally attached so you act. When you act, you trade which means Wall Street firms make money. When you control your emotions and don’t act and stay invested, Wall Street doesn’t make money. Interestingly, you are more likely to be successful by doing nothing than by acting on your emotions. But, this is easier said than done.

    As you’ve pointed out, you need to focus on the long term. The stock market is volatile and will move up and down over the short term. But over the long term, the trend is positive. Need proof? Name the last time the stock market dropped to zero.

  12. Jane Savers
    October 14, 2013

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    CNN has the debt ceiling clock running nonstop. Your government is crazy and CNN is trying to whip the entire country in to a panicked frenzy.

    I follow these things from Canada and I am wishing I had a supply of cash ready to buy in case people do panic and sell.

    Your government only seems to care about fighting battles against each other. They don’t seem to care about the citizens. It is like there is never a break between elections and they are always trying to win the next one.

  13. Justin
    October 14, 2013

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    Glad to see I’m not the only one thinking “WTF is wrong with the media?”.

    I have pretty much given up on watching the news or wasting any time reading about the shutdown. It will be a black cloud looming over us all until it isn’t.

    The market is up about 1.5% since the eve of the Shutdown. Good thing I don’t give a crap about the news and follow the best investment advice ever: Just ignore your investments and let them grow over time.

    Over our lifetimes there will be hundreds or thousands of “crises” that should make us panic and fear for our lives and the security of our investment portfolio. The best thing we can do is turn the TV off, and ignore the headlines on the news. In 10 years, 20 years, or 50 years, we are very likely to see stock prices much higher than today. I feel sorry for all the suckers who can’t pluck their eyeballs away from the glowing illumination of tv and computer screens long enough to ignore the talking heads. Leaving your portfolio alone is the best that one can do in times of “panic” (if you call the market going up 1.5% a panic).

  14. Charles
    October 15, 2013

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    Having a 24 hours new cycle is the big reason things get blown out of the water. Following every news bit is terrible for your investments

  15. Jen
    October 15, 2013

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    Seems like we’re just going from one crisis to the next. Fiscal Cliff, Debt Ceiling, blah blah blah. We automatically contribute to our 401k regardless, and I hardly ever look at it anymore. The one time I did buy stocks just for the fun of it was during another “crisis”, and I made a pretty good return.

    I haven’t purposely watched TV news in years.

  16. Steve
    October 19, 2013

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    What I found interesting was the market’s behavior the day of the shutdown. That should have been really bad news that should have led to a major decline.

    But the market went up on the day of the shutdown. So much for all of the doom and gloom. Maybe the market is efficient after all.

    • Johnny Moneyseed
      October 20, 2013

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      Steve — Yeah, there’s so much going on in the US and World markets that a few political hiccups aren’t going to do the damage that the newscasters want you to think they will. They’re in the business of hyping people up. If there isn’t a controversial issue going on, then they won’t have viewers glued to the screen.

      We just need to get investment bankers into our line of thinking. Basing investing on emotion can be a very scary things for everyone.

      • Justin
        October 21, 2013

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        Right on! The news channels must have been fresh out of controversies, plane crashes, viral outbreaks, and other gory stories. My wife commented that CNN’s headline story this weekend was “How to make really good meatloaf”. While the state of meatloaf quality is a pressing concern, it isn’t the normal kind of breaking news we usually see. It is, however, news we can sink our teeth into. Articles about good meatloaf are also rather useful, unlike most doom-n-gloom reportage.

        • Johnny Moneyseed
          October 21, 2013

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          Meatloaf is important and delicious. The only thing better would have been a report about bacon.

  17. JR
    October 23, 2013

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    The fact that so many people use financial advice that they get from the news is a terrifying thought. The sad part is probably tons of people watched that news segment and decided they needed to sell off some stocks, having no clue that it was actually the worst possible time to sell off stocks. Ugh.

  18. Kraig
    October 23, 2013

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    JM,

    Yeah, I can’t stand big media and their stupid marketing tactics. It’s all garbage. When the masses are going crazy and freaking out, I just put in a good podcast or like you, read a good book and forget about it all. Our money will be fine in the market. After all those idiots sell, a bunch of smart people will buy their shares at a discount and we’ll be back.

    Nice seeing you down in St. Louis by the way. It was fun!

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