Tip #1-1 - Beware of Headlines

Intuition tells us that investors act emotionally (after all, they're human) and panic under stress. Recent research indicates investors with $100,000. or less fear losing more than gaining.

I've always said that your toughest competition is headlines. They are intentional hype to sell periodicals. One strategy for the advisor, then, is to reveal the monster and in that context set the investor client's expectation to "stay the course." Teach your clients patience. If some will not learn, ask yourself, "Is this client worth keeping?"

Headlines are written to attract attention, and attention is certainly gained by scaring the bejesus out of people. To cut off panic at the pass, help your clients understand what came after the panics that have gone before. Bad history is repeated by people who do not learn from it, hence the old saying. Those who do learn from it are not relegated to reliving it. Not even the great crash and depression of the 1930s would have destroyed a long-term investor who stayed the course with a superior investment strategy.

Here are some headlines that many clients have requested from me, on hearing me explain the enemy in those headlines.

• DON’T FALL FOR IT WHEN THEY TELL YOU – “BUY NOW! PRICES ARE GOING HIGHER!” BECAUSE PRICES ARE HEADING FOR ONE OF THE WORST PLUNGES YOU’VE EVER SEEN. - 1951, Dow Jones Industrial Average: 262

• WILL THIS MAJOR SHAKE-UP IN AMERICA’S WEALTH WIPE OUT YOUR SAVINGS AND CRIPPLE YOUR FUTURE? - 1954, Dow Jones Industrial Average: 330

• USSR LAUNCHES SPUTNICK I, U.S. DOMINANCE IN DOUBT, DOW OFF ALMOST 10 PERCENT IN UNDER A MONTH - 1957, Dow Jones Industrial Average: 419

• CUBAN MISSILE CRISIS JAMS INDEXES SHARPLY LOWER - 1962, Dow Jones Industrial Average: 590

• INCREASED VIETNAM BOMBINGS AND TALK OF HIGH TAXES ROUT MARKETS - 1966, Dow Jones Industrial Average: 785

• NIXON RESIGNATION, RUNAWAY INFLATION AND THE CRISIS OF CONFIDENCE IN THE ECONOMY FOREVER CHANGE THE MARKET - 1974, Dow Jones Industrial Average: 616

• JOE GRANVILLE’S ‘ABANDON ALL HOPE’ MESSAGE SPARKS A GIANT SELL-OFF ON RECORD VOLUME - 1981, Dow Jones Industrial Average: 875

• STOCKS CRASH, DOES A DEPRESSION LOOM? - 1987, Dow Jones Industrial Average: 1,738

• IS IT 1929 ALL OVER AGAIN? HUGE BEAR MARKET FEARED - 1987, Dow Jones Industrial Average: 1,805

• HIGH INTEREST RATES, THE THREAT OF WAR AND INCREASED UNEMPLOYMENT ARE ALL MARKET KILLERS - 1990, Dow Jones Industrial Average: 2,633

• OUR EXPECTATION IS THAT WE ARE FACING A LONG BEAR MARKET, PERHAPS AS LONG AS FIVE YEARS, AND THAT A GREAT PART OF THE ADVANCE OF THE PAST 15 YEARS WILL BE RETRACED IN THAT TIME - 1990, Dow Jones Industrial Average: 2,670

• IF THIS IS NOT A HIGH-VOLUME, CHURNING, DISTRIBUTIONAL, QUADRUPLE TOP, I’LL EAT MY CHARTS - 1994, Dow Jones Industrial Average: 3,708

• IS THIS THE END? THREE SAVVY PROS LOOK AT THE BEAR THAT’S BEGUN - 1994, Dow Jones Industrial Average: 3,762

• TWO BEARS FORECAST MARKET MAULING—TAKE PROFITS NOW RATHER THAN BE PANICKED INTO SELLING LATER AT MUCH LOWER PRICES - 1996, Dow Jones Industrial Average: 5,300

• PROFESSOR’S SOPHISTICATED COMPUTER MODEL FORECASTS 40 PERCENT DECLINE FOR EQUITIES - 1996, Dow Jones Industrial Average: 5,354

• VALUE INVESTOR WARNS BEAR IS NO LONGER HIBERNATING - 1997, Dow Jones Industrial Average: 6,587

• IF YOU’RE NOT PREPARED FOR THE BEAR, YOU RISK GETTING MAULED - 1997, Dow Jones Industrial Average: 6,703

Add your own. Keep a list. It's a good teaching tool.

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