To say that the news of today has grasped our attention, would be an understatement. The headlines have seemingly paralleled the 1970’s and understandably, prognosticators are trying to parse the information to gain a sense of what the future may hold.
So how should an investor interpret the headlines? To start, it would be helpful to remember that the news business is just that – a business. The product of this business is viewership that they sell to companies for ad revenue, so the more eyeballs the better. Additionally, there is a growing body of evidence that illustrates the human tendency to prioritize negative over positive news. If that is true, then this business has an incentive to create headlines, articles and tv shows that have more of a pessimistic outlook for a given situation rather than a positive one.
It is also important to recognize that any interpretation of today’s headlines does not take away the uncertainty of future market returns. There is a reason all investment prospectuses carry the disclaimer “past performance does not guarantee future returns” and that’s because history provides us with lessons, not a crystal ball. The parallels from the 70’s are notable but that does not mean shag carpet, bell-bottoms or a Bill Babb mustache are making their return, and that’s ok. The future is uncertain but the lessons of the past are clear, the uncertainty that previous investors endured rewarded those with the discipline and fortitude to stick to a long-term investment strategy.
Given the current news cycle, we thought we would share an article written by Dimensional Funds last summer which you can read here. It provides some history of market returns based on headlines of the past and is relevant to today’s events. We hope you enjoy this quick read and as always, we thank you for the trust you have in us.