Why investors should sometimes ignore market noise

A week after North Korea’s nuclear test, financial markets have largely digested the news. As of now, most people believe that despite the heightened tensions between Washington and Pyongyang, there is little chance of a war. If so, what is the point of worrying?

Just because there is ongoing tension, does that mean we shall keep waiting and do nothing?

What if the same situation lasts for a decade, and during the period, technology keeps advancing and stock prices rise through the roof?

Even for worrying, we have to set a time limit to it. That is my advice to investors.

Warnings regarding the potential impact if a war breaks out are often scary.

For example, an analyst predicted that Asian markets may slump 20 percent if the North Korea crisis escalates into a war. Such comments attracted a lot of media coverage.

The truth is some analysts care about hit rate rather than return rate. Therefore, they would do everything to make their reports attractive rather than insightful.

For such reports, the target audience can sometimes be those who had been hesitant and missed the bull market earlier.

These investors hope the market would go through a deep correction so that they can have an opportunity to get in.

The analysts making pessimistic noises could simply be telling the investors what they want to hear.

Certainly, there are market ups and downs, but a market meltdown usually only occurs on either extreme fear or plunging earnings.

We’ve seen neither of the two so far. Unless there are extremely adverse changes, the chance of seeing a panic market is very slim.

Meanwhile, corporate earnings actually look set to stay strong as the global economic recovery continues.

This article appeared in the Hong Kong Economic Journal on Sept 12

Translation by Julie Zhu

[Chinese version 中文版]

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