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MAKING CENTS OUT OF THE NEWS
Blog #17
(April 30th, 2009)
CUM GRANO SALIS IS THE WAY TO TAKE NEGATIVE NEWS
By Tom McAllister, CFP™
There are several explanations for the origin of the phrase "take it with a grain of salt". Etymologists trace the expression back to Pompey's discovery, recorded by Pliny in 776 A.D., of an antidote to poison. This medication needed to be taken with a small amount of salt "(cum grano salis" in Latin. At long last I get some use from four years of high school Latin.) to be effective. (Whether that's the real origin of the expression is moot - everyone knows a dash of salt can make uninspired cooking more palatable!)
It’s important for us all to apply that proverbial grain of salt to all the negativity we're being served up daily by the media. Upon reflection, I concluded that even investors who are not financially crippled by the current economic situation are emotionally affected by the negativity they hear and read about almost daily. This cloud of negativity, in itself, is having a very negative effect on the economy, making actual problems worse than they need to be.
On a recent lecture cruise in late March, I asked my audience of 125, most of whom were on a 117 day world cruise, “How many of you have bought a new automobile in the last six months?” Two people held up their hands. Since car dealers are almost giving cars away these days, this low number was very interesting to me. After all, these people had paid as much for the cruise as a nice mid-sized car might have cost these days.
None of us has the power to control the way in which the news media, particularly cable TV, report the events of each day. Nor should we have power to control the press. But, whatever anxieties investors are experiencing due to actual losses in their portfolios are exacerbated by the daily broadcasts of gloom and doom.
On the cruise, we received both CNN and Fox News channels in our cabins. I heard statements such as,
“We are headed for another depression”
“The market will get much worse before it gets better”
“The stock market may not recover for many years.”
All this negativity was being "pushed" our way, mind you, at the very time the stock market was in the middle of a 25% rise from its bottom on March 9, 2009.
While we cannot control the news or how it is reported, we can control how we react to all the negativity flowing from the media.
Journalists are just that, journalists! They are not economists, nor financial mavens, nor experienced advisors or planners. Their job is to report the news in such a manner as to maximize ratings. Bad news almost always attracts more readers and viewers than good news. As a forty-seven-year veteran investment observer, I must observe that, as I listen to the 11 o’clock news of an evening, or read the front page of the morning newspaper, a great portion of the bad economic news reports seems highly exaggerated.
In January the media reported the U.S. had lost 2.5 million jobs in 2008, "THE MOST SINCE 1945"! This report was factually true, but, I think, misleading. In 1945 the U.S. had 90 million citizens, compared to 305 million today. That means current job losses as a percentage of our population have been one third the percentage in 1945. In a recent blog I pointed out a similar statistic where the press was saying we have more unemployed people today than at any time in the past forty years. But forty years ago, remember, we only had half the population!
A second misleading report focused on the “fact” that investors made no money in the market from the mid-60s until the early 80s, and that it took those 25 years for the stock market to get back to 1929 levels after that crash. Both of these myths completely ignore dividends, which averaged six percent annually during the years in question.
And last, as this is posted the morning financial section proclaims the economy dropped 6.1% during the first quarter of 2009. If true, this would be catastrophic indeed! Closer reading of the body of the article points out that this number is annualized. Thus, the first quarter actually retracted about 1.5%, a much more manageable number.
Ben Stein, one of the very few financial columnists I respect and admire, recently wrote; “We are more than our investments. We are more than the year-to-year changes in our net worth. We are what we do for charity. We are how we treat our family and our friends. Losing and making money are not moral issues, as long as you are being honest. You may have a lot less money as 2008 ends than you did two years ago. But you are just as good or bad a person as you were then. It is a myth that money determines who you are, and if you have gotten over that myth by now, then 2008 will have been a very good year.”
Stein and Pliny have it right. I suggest all my readers take negativity in the media with a shaker full of salt!
With all the rapid changes in our economy and in the investment markets, there are many investors who would benefit from more consistent guidance. We are currently accepting new financial planning and investment clients, and would appreciate your referrals.
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