Every now and again I get a text message from a particular friend of mine. His last read: “What are your thoughts on the credit rating? ‘Big deal,’ or ‘chill out everyone?’” I responded “Chill out everyone.” and that was the end of our textversation. This, of course, was in reference S&P’s downgrade of U.S. debt from AAA to AA+ in early August.
I can’t help but feel somewhat proud that my friend texted me what he did, and it’s definitely a result of our many conversations (and healthy debates) regarding current events. He’s learning. He’s not a “finance guy” so I would never expect him to conduct an in depth analysis of U.S. credit markets. But he knows to question the big scary headlines. That’s the important part.
The media sensationalizes. It’s their job. Just look at some of these headlines:
- “S&P downgrade US credit rating: America in worst kind of decline, says Thomas Friedman”
- “U.S. Credit Downgrade By S&P Darkens Economic Outlook, Stokes Recession Fears”
In the end, what did the downgrade really mean? Was the U.S. all of a sudden weaker than the Isle of Man (another AAA rated country)? Absolutely not. It was a political statement – Standard & Poor’s even said as much in their official comments on the matter. But those headlines are intimidating and to someone who doesn’t follow financial markets or the economy, they can create a sense of fear. We can even look at more recent taglines surrounding Europe:
This isn’t to say these articles are completely devoid of truth, but they all have one clear commonality: they sensationalize. And for good reason, right? The authors are business men and women just like us. At the end of the day their job is to sell a story and make a profit. And one thing is certain: fear sells. There’s so much doom and gloom in the media it’s hard not to believe the world is ending tomorrow.
Always remember the first rule in The Hitchhiker’s Guide to the Galaxy: DON’T PANIC. The world is NOT coming to an end and things are almost never as bad as the media would have us think. Sure, there are problems in Europe, and yeah, we’ve got issues in the U.S. That’s beside the fact. You need to view the news and media with a discerning eye. It’s one of the primary reasons we have the “Must Read” section on Daily Capital – we scour the news and search for articles our readers might normally miss due to excessive noise.
It’s easy to get caught up in scary headlines. But just like my friend figured out, one of the most valuable skills you can learn is being skeptical of everything. Particularly when it comes to investing. The last thing you want is to allow panic to drive financial decisions – it’s a surefire way to lose a lot of money. Ignore the noise.
Final food for thought: it’s kind of interesting how the headlines reach their worst just when conditions start to improve. …
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