Stock Market News

by

Stock Market News

Why don’t the media run more good stock market news? One view is bad news sells. If people preferred good news, the media would supply it. But stock markets don’t see news as necessarily good or bad, rather in terms of what is already built into prices.

One academic study appears to confirm the view that the apparent preponderance of bad stock market news is as much due to demand as to supply, with participants more likely to select negative content regardless of their stated preferences for upbeat stock market news.1

“This preference for negative and/or strategic information may be subconscious,” the authors conclude. “That is, we may find ourselves selecting negative and/or strategic stories even as we state that we would like other types of information.”

So an innate and unrecognized demand among consumers for bad stock market news tends to encourage attention-seeking commercial media to supply more of what the public appears to want, thus fueling a self-generating cycle.

Insofar as consumers of stock market news are investors, though, the danger can come when the emotions generated by bad stock market news prompt them to make changes to their portfolios, unaware that the stock market news is likely already built into market prices.

This is especially the case when the notions of “good or bad” are turned upside down on financial markets. For example, stocks and Treasuries rallied and the US dollar weakened in early October after a weaker-than-expected US jobs report. Some observers said the “bad news” on jobs was “good news” for interest rates.2

Conversely, a month later, stocks ended mixed, bonds weakened, and the US dollar rallied after a stronger-than-expected payrolls number. While an improving job market is good news, it was also seen by some as cementing the case for the Federal Reserve to begin raising interest rates. In both cases, the important thing for markets was not whether the report was good or bad but how it compared to the expectations already reflected in prices. As news is always breaking somewhere, expectations are always changing.

For the individual investor seeking to make portfolio decisions based on stock market news, this presents a real challenge. First, to profit from news you need to be ahead of the market. Second, you have to anticipate how the market will react. This does not sound like a particularly reliable investment strategy.

Luckily, there is another less scattergun approach. It involves working with the market and accepting that stock market news is quickly built into prices. Those prices, which are forever changing, reflect the collective views of all market participants and reveal information about expected returns. So instead of trying to second-guess the market by predicting news, investors can use the information already reflected in prices to build diverse portfolios based on the dimensions that drive higher expected returns.

As citizens and media consumers we are all entitled to our individual opinions on whether stock market news is good or bad. As investors, though, we can trust market prices to assimilate news instantaneously and work from there.

In a sense, the work and the worrying are already done for us. This leaves us to work alongside a Johns Island Investment Advisor to build globally diverse portfolios designed around our own circumstances, risk appetites, and long-term goals.

There’s no need to respond to stock market news, good or bad.

 

1. Marc Trussler and Stuart Soroka, “Consumer Demand for Cynical and Negative News Frames,” International Journal of Press/Politics (2014).
2. Mark Hulbert, “How Bad News on Wall Street Can Be Good News,” WSJ MarketWatch (October 5, 2015).
3. Author: Jim Parker, Vice President, Dimensional Fund Advisors with some edits by Coastal Wealth Advisors, LLC. Original article here.

7 Simple Rules for Investing

by

Johns Island Financial Planner

Today’s blog topic is focused on 7 Simple Rules for Investing, but first, I wanted to take a moment and talk about what we’ve been doing during this recent market correction.

We’ve been rather absent from blogging lately because we’ve been spending all of our time speaking with our clients to ensure their investment portfolio matches their risk tolerance and reinforcing these 7 Simple Rules for Investing. And I know what you’re thinking…shouldn’t that be determined at the onset of the investment process? Absolutely. And it was. But the quirky thing about risk and behavioral finance is that our opinions of our own money change as the markets change. It’s really easy to become more optimistic about the stock market when markets are on the rise; thus causing us to want to become more aggressive when times are good. The same is true when times are bad; convincing us to become more conservative when the markets take a hit. This mental behavior has been studied for decades and a Nobel Prize in Economics was won as a result of a 1979 study in which two psychologists, Kahneman and Tversky, concluded that we feel the “pain” of the losses much more than the “joy” of the gains.1 Two authors, Thomas Gilovich and Gary Belsky, took this study a step further in their 1999 book (referenced below) to conclude “the sting of losing money, for example, often leads investors to pull money out of the stock market unwisely when prices dip.”2

In our role as an investment advisor, we have to constantly be available to manage the reins on the emotions of behavioral finance. And we do all that we can to address these topics head on. We believe that having a constant finger on the pulse of clients’ risk tolerance is far superior to setting a risk tolerance target in the beginning and never revisiting it. We use a mathematical and statistical approach, combined with group discussion to determine our clients’ risk scores.

Proper portfolio design, in our opinion, is built upon the notion that markets are going to rise and fall, have really bad times and really good times, and over the long-term, provide adequate returns to offset the risks taken. By this, we mean, markets work. We believe the markets are efficient to price in all of the known information out there about a particular security, sector, etc. And this is why we consistently avoid trying to time the markets and buy or sell on “news.” But the markets change and what looked like a promising investment, may turn out to be not-so-promising. In our business, we call these investments, losers. And even portfolios managed by professionals will have losers.

It’s important to understand and constantly refer to the basics of investment philosophy. We’re going to let Jim Parker, Vice President of Dimensional Fund Advisors, outline below 7 Simple Rules for Investing:3

  1.  Accept that not every investment will be a winner. Stocks rise and fall based on news and on the markets’ collective view of their prospects. That there is risk around outcomes is why there is the prospect of a return.
  2. While risk and return are related, not every risk is worth taking. Taking big bets on individual stocks or industries leaves you open to idiosyncratic influences like changing technology.
  3. Diversification can help wash away these individual influences. Over time, we know there is a capital market rate of return. But it is not divided equally among stocks or uniformly across time. So spread your risk.
  4. Understand how markets work. If you hear on the news about the great prospects for a particular company or sector, the chances are the market already knows that and has priced the security accordingly.
  5. Look to the future, not to the past. The financial news is interesting, but it is about what has already happened and there is nothing much you can do about that. Investment is about what happens next.
  6. Don’t fall in love with your investments. People often go wrong by sinking emotional capital into a losing stock that they just can’t let go. It’s easier to maintain discipline if you maintain a little distance from your portfolio.
  7. Rebalance regularly. This is another way of staying disciplined. If the equity part of your portfolio has risen in value, you might sell down the winners and put the money into bonds to maintain your desired allocation.

We couldn’t have said it better ourselves. You may have a similar risk tolerance to thousands of other people, yet your portfolio could be drastically different. There are numerous, if not, infinite, ways to construct a portfolio that matches your tolerance for the risks of the stock market. When constructing a portfolio, it should be done in a way that allows you to remain invested even during really bad times. There’s a reason “don’t panic” is the mantra of most investment advisors out there…you should have built a portfolio that takes into consideration your internal panic button, or better said, “the amount of money you’re willing to lose before you make the decision to sell everything.” If you find yourself increasingly worried that your portfolio is not structured according to your risk tolerance and financial goals, give us a call. We’re a Johns Island Investment Advisor who helps clients define their risk tolerance and build a portfolio to match it.

Dimensional Fund Advisors LP (“Dimensional”) is an investment advisor registered with the Securities and Exchange Commission. Dimensional and Coastal Wealth Advisors, LLC are not affiliated companies. All expressions of opinion are subject to change without notice in reaction to shifting market conditions. This content is provided for informational purposes, and it is not to be construed as specific investment advice or recommendation.

1 http://prospect-theory.behaviouralfinance.net/
2 http://books.simonandschuster.com/Why-Smart-People-Make-Big-Money-Mistakes-and-How/Gary-Belsky/9781439163368
3 7 Simple Rules for Investing, Jim Parker, Unhealthy Attachments

Image: Angel Oak in Johns Island, SC

Automatic Investing

by

Charleston Investment Advisor

 

We believe that one of the best ways to take advantage of the rise and fall of the stock market is through automatic investing. Automatic investing is exactly as it sounds. You determine a set amount of money you can afford and allow it to automatically invest into a mutual fund or mix of funds on a set schedule each month. We call this Dollar Cost Averaging, or DCA for short and is the very principle by which you invest into your employer’s retirement plan. Using a DCA strategy, you’ll likely achieve the average price of the security over a period of time. Because it is impossible to accurately predict the direction of the markets we usually advise our clients to avoid trying to time the market.

Here’s how to set it up:

  1. Link your bank account to your investment account.
  2. Choose an amount of money to invest.
  3. Choose which funds to invest in.
  4. Choose a time period.
  5. Set up the automatic instructions with your investment advisor.

If you have a long-term time horizon, you’ll want to think of the market in this manner: it’s on sale. This means you want the market to drop in value while you’re buying. It’s a pretty simple concept but yet we often get too lost in the misguidance of measuring short-term gains at the expense of the long-term strategy. The longer you set your focus, we believe the better you’ll feel about your investment strategy. Automatic Investing takes the guesswork out of deciding when to jump into the market. Over time, the markets will hopefully move higher, but while you’re contributing, you want to act selfish and hope you’re buying low so that someday, you can sell high.

There are dozens of decisions involved when choosing an investment strategy. Don’t go at it alone. We’ll help you back test your strategy and offer some suggestions on how you can improve it. We help our clients analyze their investment options and risk tolerance and then build an investment strategy that fits their lifestyle and wherever it may lead them. We want to be your financial partner. Get in touch with a Charleston Financial Advisor today!

COPYRIGHT © 2025 · COASTAL WEALTH ADVISORS. COASTAL WEALTH ADVISORS, LLC IS A REGISTERED INVESTMENT ADVISOR IN THE STATES OF SOUTH CAROLINA, PENNSYLVANIA, NEW JERSEY, NEW YORK, FLORIDA, AND NOTICE-FILED IN TEXAS. THE OPINIONS VOICED IN THIS MATERIAL ARE FOR GENERAL INFORMATION ONLY AND ARE NOT INTENDED TO PROVIDE SPECIFIC ADVICE OR RECOMMENDATIONS FOR ANY INDIVIDUAL. INVESTING INVOLVES RISKS SUCH AS FLUCTUATING VALUE AND POTENTIAL LOSS OF PRINCIPAL VALUE. THERE IS NO GUARANTEE THAT ANY INVESTMENT STRATEGY WILL BE SUCCESSFUL. DIVERSIFICATION NEITHER ASSURES A PROFIT NOR GUARANTEES AGAINST A LOSS IN A DECLINING MARKET. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. NOTHING LISTED ON THIS WEBSITE SHOULD BE CONSTRUED AS SPECIFIC INVESTMENT ADVICE; WE WELCOME YOU TO CONTACT US OR YOUR ADVISORS TO TAILOR ADVISE TO YOUR SPECIFIC FINANCIAL SITUATION. ADV & PRIVACY POLICY.