How to Distinguish Negative Economic News

Image result for image on negative news

A few days ago, I came across an article entitled “It is Confirmed that there is no recession here.” But when I looked at the comment section, one reader responded re-actively saying: “There will be market crash tomorrow, you better get out of the market immediately today.” Which one would you think have more weigh to influence readers? I would think the second position affects most investors than the positive one. This is particularly true when the market has just fallen hard a few days ago.

People are mostly influenced by emotion when it comes to decision making. Whenever there is a market crash, the investor will seek for the reason of the happening from news. Economic news will never disappoint these people by providing not only a valid reason but also painted a worsening picture that justifies all investors running away.

Headlines like “the worst are yet to come”, this is just a “tip of the iceberg” will surface most of the time during market crashes. (Please read also 7 Effective Reasons Why Investors Should Have Learned to Love Market Crashes.) But when market recovers and creates new historical heights, all these negative proposers disappeared. However, they will appear again on the next crash, and they will say again, “I told you so….!”

Possibly all investors lose money because of these negative news influences during the market correction. We often call these just noises of the market. So how should we discern which news article to listen to and which are the ones we should ignore?  

In order to have the ability to distinguish which news are beneficial and which are not, we have to first of all, trained ourselves to be the correct type of investors. Our decisions are effectively influenced by who we are most of the time.

Three Types of Investor

There are three types of investor putting their money into the market hoping to receive a profit. The first type is the passive type who put their money down through a third party and would not care what is going on about financial development, nor would he read or update himself with market news or analysis.

After some time when they look back into their investment, they would be happy if their investment profited. If their investment remains the same or incurs losses, they would blame on the entrusted party.  

I was in this position before when I first heard unit trust is the easiest type of investment where professionals are employed to manage our investment. But after 10 years, I discovered that my investment remained the same, but it has already incurred time opportune losses. I have shared this experience in Misleading Information 1 ~ Unit Trust Investment is Safe.  However, good thing that later on, I have outgrown from this type of investor.

The second type of investors is those who are responsive type. These investors have the heart to learn about market investment and they give time and effort to manage their investment attentively. They are very cautious about where they put their money.

This is the type of investors who often fall victim to negative news during market crashes. Consequently, they incurred losses in investment most of the time. I was here too victimized by that negative news and was sucked away with a lot of my capital profit. However, I have outgrown myself into the third type of investor. Unfortunately, many investors stay in this type and have never outgrown themselves.

Moving into an Experienced Investor

The third type investor is the rare ones who do not only invest cautiously but also read the news, keep track of economic development. But this type of investors has overgrown themselves from the influences of negative market news. They have learned how to screen or filter which news they are going to listen to, which ones they are going to ignore. 

These investors have grown over some time in their investment experiences through thick and thin. They have come to realize that they need to invest their money into a certain underlying economy, not just the stock market. 

Stock market index reading is only an external indicator for them to earn profit. But economic fundamentals are the real value they are investing. As long as economic fundamental is still solid and strong, they will know how to make their move whenever the market crumbles down regardless how negative news being reported.

They also learned to sense market sentiments and are willing to expose themselves less during high volatile market times and willing to earn less if there are no market crashes.  

As a result, they always position themselves well. That’s why they can buy even more confidently during market crashes instead of quitting fearfully. As long as that particular economic fundamental is still strong and solid, the market will recover after heavy crashes.

Market index crashes are caused by human emotion due to unknown fear and panic. These panic selling are often time compounded by prevailing negative news articles.  But to the third type of investors, market crashes are good opportunities to gain even more. 

Do you know not every investor hate market crash? Those who do not expect the market crash, but they meet one will be the ones being victimized. But those who have prepared themselves and welcome one will be the ones happy embracing it. These people are the third type of investors described above. They learned to love market crashes and welcome them instead of fearfully reacting to market crashes.  Negative news in the market during times of crisis no longer affects them that much as compared to the second type of investor.  Afterall, where in the history of stock market investment does not have negative market news? There are there for a specific function, but we can outgrow them.

Which type of investor are you as described above? If you found yourself in the second type, your mission right now should be moving into the third type. It’s not easy, it takes conscious effort, but it will surely be very rewarding.  

Happy learning through investment!

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The view and opinion expressed are personal views of the author and are subject to change based on market and other conditions.  This write up does not constitute sole advice for an investment decision. Investors are advised to do further reading and research to conclude individual decisions.

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