The Power of Bad – why we only remember the bad news in investing

Sep 23, 2022 | Financial coaching, Investment, Reflection

The US released their August inflation figures on September 13. The 12 month inflation change to the end of August was 8.3%. This was down from the June figure which was 9.1%. Inflation is coming down – good news right? Not so. The expectation was that the figure would be 8.1% so it wasn’t as good as expected. The outcome? The benchmark S&P500 dropped by over 4% and the Australian market followed suit the following day.

The market gained more than it lost but you wouldn’t know

The raw figures when looking at economic data or company financials do not tell the whole story.

If a company makes a profit you would think that would be a good signal, not so if the profit is less than what was forecast. Similarly, a company making a loss can be good news if the loss is less than forecast.

Good news can be bad and bad news can be good.

The fall on the ASX the next day didn’t erase the gains of the previous 5 days although from the news headlines you wouldn’t know that.

The stories I saw were trumpeting a $60 billion market wipeout. But there was no mention of the previous 5 days and the billions gained?

Going further back, this calendar year has seen superannuation and investment balances trend downwards and for some in quite a significant manner.

The gains that had been made since the Covid-19 market depths of March 2020 are long forgotten. Why is that?

We focus on the bad news and forget the good news

An explanation can be found in a book titled The Power of Bad written by John Tierney and Roy Baumeister.

The book summary is that “our brains are wired to focus on the bad and the power of bad governs people’s moods, drives marketing campaigns, and dominates news and politics.”

So it’s neither ours nor the news outlets fault that we focus on bad news, it is hard wired.

This is why the joy of a win or success in whatever shape or form is not felt as keenly nor as long as a loss or negative outcome. The authors state that “There is no opposite of trauma, because no single good event has such a lasting impact.”

What can we do to challenge the focus on bad news?

From an investment point of view we can tell from a quick search whether markets have been up or down. If they are down (like now) don’t check your balance. You can know with a reasonable amount of certainty that your balance is less than it was a while ago so why torture yourself?

The importance of a long term view in investments

Ideally you have a longer term view and plan and this is an expected happening along the way. Markets have rewarded investors over the long term and there are more positive years than negative.

More broadly, focus on some positives and what you have had and do have. Fortunately, for most the good times are more prevalent than the bad it’s just that the bad times and events are felt more deeply and lastingly. Gratitude is the highway to happiness.

Simon,
Financial Advisor and Founder – Core IFA

About the author

Simon Duigan is an Independent Financial Advisor and owner of Core Independent Financial Advice (Core IFA). Core IFA is 100% independent and receives no commissions or benefits from any product providers or financial institutions.. Instead, you can be confident that Core IFA have your best interests at heart.

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