Shark Week and the Stock Market: Don’t Believe the Hype

Shark attacks make great stories.  I don’t have a good shark attack story but I always seem to find myself at the beach the week of or the week after Discovery Channel’s Shark Week and feel as though I will have a story to tell.  After seeing all the images of these ferocious men-eating fish, certainly a shark is waiting for me in the Gulf.

However, according to the University of Florida’s shark attack file, there is only a one in 11.5 million chance of me getting attacked by a shark. That means I am:

…3 times more likely to drown at the beach
…30 times more likely to get struck by lightning
…more likely to be killed by a dog, a snake, or a car collision with a deer.

Even knowing this statistic, I still hesitate to go into the ocean.

According to a phenomenon known as Availability Bias, people tend to heavily weigh their decisions toward more recent information, making any new opinion biased toward the latest news. In other words, it seems like vivid events are more likely to occur. Thanks to Shark Week, in my mind are images of shark attacks, therefore, in my mind, they are more likely to occur.

Now that Shark Week and my family beach vacation have come and gone, I cannot help but think of the similarities between Shark Week and the stock market.

Since the “great recession of 2008”, rarely has there been positive economic news reported on the networks. The American public sees reports on foreclosures, job loss, and stories of individuals who have lost life fortunes in the stock market. There is economic doom and gloom at every turn!

But consider this: The S&P 500 from 2/28/2009 through 12/31/13 was up nearly 180%*. You would never know if you based your opinion solely on the news.

Over the past 5 years since the recession, if the majority of the headlines you have heard and read regarding the economy and the stock market were negative, it possibly has kept you from investing or keeping your money invested in the stock market. And if that’s the case you have missed out on a lot of financial growth.

It’s “Availability Bias” at its best. Negative headlines are what are readily available therefore in your mind, those events are more likely to occur.

Despite the images I see during shark week next year, I am still going to go into the ocean. I will use prudence and not go in during dusk or dawn when sharks feed. I’ll remind myself that Shark Week is hype and that Snuffy the Seal is made up. I will enjoy the sand bar with my kids.

Don’t let negative hype keep you from participating in the stock market. Rather apply prudence when you invest. Statistically, we know that well-diversified portfolios are a good defense against market volatility. Make your financial and investing decisions by wisely discerning the facts rather than on the most “vivid event” in your mind or on the most readily “available news”. If you do this you will find it will lead to better results.

*Past performance does not guarantee future results.