The clouds over the UK economy and stockmarket may be lifting, but new gloom has started the year. Easing of fears on the UK has been replaced by worry on global risks. For investors who kept cash on the side-lines amidst UK uncertainty, there seem plenty of good reasons to stay there now. How should investors view the newspaper headlines, market volatility and sudden interest in gold?
Unfortunately, the news we consume often has a disproportionate impact on risk appetite and investment decisions. Sensational coverage easily distracts from background information, such as whether the economy is sound, or if central bank policies support stockmarkets. Underlying data does not demand the column inches that are filled with shocks and Tweets. Politicians know how to grab attention, but that does not mean their pronouncements matter more than underlying economics. Politicians influence less than they care to think. But it is hard for investors to sit on their hands when the news seems to demand a change of strategy.
The problem with news is not just the focus on alarm: much of the mainstream comment and analysis is consensus-driven. Genuinely-concerning trends are slow to make the front pages. The run-up to the financial crisis showed this clearly. A few observers did spot the signals, but little of that got attention in conventional media. Investors need to manage their news intake; limiting reaction to headlines and incorporating some original, less conventional sources.