Investing Based on the Headlines

Stockcharts Dow Jones Chart (Mod)One of the worst things long-term investors can do is make investment decisions based on the headllines. Long-term investing is based on the belief that, over time, the stock market will always go up.

This is a chart of the Dow Jones average from 1902 through 2014. As you can see, the market didn’t go up every year – or every month, week or day. But it always eventually went up. 

As an investor, it’s extremely important to look at investing with this in mind. It allows you to keep things like the recent debt crisis in Greece, and other dramatic headlines, in perspective. Consider this headline from The Guardian newspaper on March 15, 2011:

“Global stock markets fell sharply on Tuesday as the panic gripping Japan in the wake of its catastrophic earthquake and tsunami spread around the world.”

Selling your stocks in March of 2011 wouldn’t have been such a good idea. In fact, can you even find this event on the above chart?

As a long-term investor, the best way to look at headline-based declines in the markets is as a buying opportunity. If you have cash to invest, a good time to invest it is when everyone else is selling and the market is falling.

As Warren Buffett has said, “Don’t buy or sell stocks based on the day’s headlines. Buy stocks because they represent a good long-term value. You can’t know exactly when to buy or sell stocks. The time to buy stocks is consistently over time.”

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