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Here's an undeniable fact: Negative news sells. And it sells well. This is especially true with financial news. As a result, the financial media is engaged in a relentless pursuit of negative news items. They know it creates anxiety among investors, which increases viewers and readers. Understanding the role of negative news in your clients’ lives will help you guide them toward sound and rational decisions.
Negative news abounds
A March 13th interview with Henry Blodget on Yahoo Finance had the following headline: "Why I've Stopped Reinvesting Dividends.”
In the interview, Blodget explains that, "for the past 17 months," he has been worrying out loud about U.S. stock prices. He had observed that a decline of 30% to 50% "would not be a surprise."
In that time, his predictions have been wildly inaccurate. As he noted, "the S&P 500 is up strongly” from when his worries began. Because he is a long-term investor, Blodget explained, he doesn’t “care what stocks do next." The change in his personal dividend policy is a "bet that, at some point in the future” he will be able “to reinvest the cash from these dividends in stocks at lower prices than today."
He may turn out to be right. Blodget is the author of the much under-appreciated book, The Wall Street Self-Defense Manual: A Consumer's Guide to Intelligent Investing, which extols the virtues of evidence-based investing. He also wrote one of the best blog posts I have ever read about Jim Cramer. However, what he is doing with his personal portfolio should be of little interest to investors. Some investors may stop reading at the headline and mistakenly interpret Blodget's change in his dividend strategy as a prediction that a market correction is imminent. Reinforcing this negative message, a stark graphic featured during the interview asked: “Time to Sell Stocks?”
Negative impact of negative news
In a perfect world, the financial media would present an appropriately balanced picture of positive and negative news. However, this is not our reality.
Negative news does impact our sense of wellbeing. One study examined the impact that viewing three different 14-minute news bulletins had on participants. One consisted of only positive news. One was only negative news. The third included news that was emotionally neutral.
Participants who watched the negative news clip reported being significantly more anxious and sad than those who watched either of the other two bulletins.
As reported in Psychology Today, the study also found that those who watched the negative bulletin tended to exacerbate personal worries not addressed in the film clip. They also spent more time talking about their personal concerns and were more likely to engage in “catastrophizing” those concerns. Catastrophizing means obsessing over them and making them sound much worse than an objective analysis would indicate.
Another study demonstrated that watching a 15-minute random newscast caused an increase in anxiety and “total mood disturbance.” The negative psychological feelings were only ameliorated by direct psychological intervention.
Negative effects on clients
It’s not surprising many clients exhibit heightened states of anxiety after viewing the daily grist of doomsday predictions featured in some of the financial media. By understanding the source of this anxiety, you will be in a better position to provide objective, long-term advice. In addition, the likelihood of your advice being accepted will increase because you will be less dismissive and more empathetic in dealing with investor concerns.
Dan Solin is the director of investor advocacy for the BAM Alliance and a wealth advisor with Buckingham. He is a New York Times best-selling author of the Smartest series of books. His latest book is The Smartest Sales Book You'll Ever Read. He limits his sales coaching practice to advisory firms that advocate evidence-based investing.
Read more articles by Daniel Solin
