Fear vs. Reality Based Investing

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End of America

Kiss America Goodbye?

Withdraw All Your Money from the Bank?

Is China About to Plunge into Financial Crisis?

Up to 308,127,404 Americans Could Be in Serious Trouble

This is just a sample of the commentary headlines and marketing messages I've been receiving from around the investment world. And it's the same basic formula these folks have been pitching since the Great Recession started in 2008.

As they say "Fear Sells".

The problem is that fear doesn't always produce the best results for your investment portfolio. That's because the economy and stock market started rebounding back in March 2009. Since then the S&P 500 has gained more than 200% making new all-time highs this year.

Those following the ill-advised fear-based messages have not enjoyed the benefit of this very real economic recovery and rise of stock prices. Unfortunately those peddling the fear did benefit by getting you to buy more of their subscription services.

What is an investor to do?

I have a couple pieces of advice that should help you going forward.

Ferret Out the Fear Mongers

The investment landscape is often a difficult one to read given the multitude of things one has to consider (economy, politics, world events, earnings, valuations etc). That is why there are such diverse opinions on where stocks are headed next.

However, some commentators have a natural bias to be more optimistic or pessimistic no matter what is happening in the real world. In knowing their motivations you will be better able to interpret the real value of their message.

As for the fear mongering types who produce headlines like those shared above, their bias is simple. They will do or say whatever it takes for you to buy a subscription to their services. These people simply cannot be trusted.

Note there is a difference between an article that has a bearish opinion and one that is trying to scare your pants off. Whenever you discover a writer or an organization that tends towards those latter fear-based approaches, it is best to write them off immediately as charlatans as they only have THEIR best interest in mind. Not yours.

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And Some People Are Too Optimistic

On the other hand, brokerage firms and money managers tend to be overly optimistic. Why? Because if their market outlook scares you, then you will move more of your investments to cash. And simply cash accounts pay them a lot less in management and commission fees than you being in stocks and bonds. That is a clear motivator for them to provide a rosier outlook than what they may truly believe will happen.

The key with them is to read between the lines. If you hear any hint of doubt or concern about the future, then magnify that concern to understand what they are truly saying.

The Truth Lies in the Middle

Consider this example as your recipe for how to balance the extreme and diverse investment viewpoints thrown your way every day.

I have two daughters; Sarah (15 years old) and Mandy (13). In general, they get along pretty well. Yet every now and then they get into a nasty fight that needs to be officiated by an adult.

Of course their stories don't match. But I find that neither one is truly dishonest. They just have different ways of looking at things. So in most cases the truth lies in the middle.

And there you have it. We as investors need to take in multiple viewpoints. We then need to throw out the most bearish views and the most bullish. Somewhere in between is the answer that will best chart our course for investment success.

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Steve Reitmeister

Steve is the Executive VP in charge of and all of its subscription services. His personal mission is to help investors achieve life-changing investment success by harnessing the power of earnings estimate revisions. Over the years, he has developed a full array of services to help investors do just that. Discover all of these services now to find the ones that perfectly fit your investment style. Learn more about Zacks Ultimate.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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