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Can We Blame the Media?

Posted by: Ben Steverman on January 22, 2008

Don Hodges, of Hodges Capital Management in Dallas, has been managing investments for 47 years.
He’s fundamentally optimistic, despite the recent market turmoil. Sure, a slowdown or even a recession might be coming, but “so what?” he says. In the long-run, the economy will return to growth, consumers will keep spending and good companies will keep making money. No big deal.
So why does it seem that everyone else is so panicked? “I think we’ve almost talked ourselves into this,” he says. “I don’t think the American public has learned to cope with minute-by-minute reporting of the stock market.”
Cable news, Internet sites and financial journalists (like me) obsess over every hiccup for the economy and the market. We make small problems seem like big problems, and big problems (like stocks’ performance since 2008) seem too much like the end of the world.
Only time will tell if Hodges is right. You could also argue that the recent volatility is the result of some very serious problems (like subprime debt and the housing market declines), and you could say it’s the structure of the modern financial system, not the media, that make markets more susceptible to wild, worldwide swings.
But still, Hodges’ argument is compelling, especially for individual investors. For anyone who’s not a professional, there’s little doubt that this focus on the short term hurts long-term performance. It also unnecessarily stresses everybody out. So follow Hodges’ lead: Relax and ignore the media (except BusinessWeek, please).

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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