Don’t let the news dictate your portfolio
On any given day, a breaking news story has the potential to impact your portfolio. A trade war could erupt, the Bank of England might announce a policy change, or a mega-cap’s results may disappoint investors.
These events can be hard to ignore.
However, while staying informed could be considered part and parcel of managing one’s investments, it is common to inadvertently develop an overreliance on a particular theme. Gradual changes to your portfolio based on what’s in the daily news could upend a well-diversified investment portfolio, leaving it overly exposed to the themes of the day.
This has the potential to hamper long-term performance.
Just because a particular trend or exciting new company is making headlines, it doesn’t mean that investing in these areas will generate outsized returns. The reverse is also true. Selling or avoiding areas that are out of favour or have performed poorly in recent years could upset the balance in a portfolio and limit returns.
Important: The information on this website is for experienced investors. It is not a personal recommendation to buy, sell or hold any investment. The views expressed below are not personal financial advice. The Wealth Club Managed Portfolios are for the long term and can fall as well as rise in value: returns are not guaranteed.
Contrarian indicators
Markets are forward-looking, whereas the media, by and large, covers what has already taken place, so prevailing media narratives have the potential to lead investors astray.
In fact, this can at times cause media coverage to act as a contrarian market signal.
One example of this was the 2011 Economist cover story titled ‘The New Tech Bubble’, which warned investors that the technology sector had completely detached from economic reality, pointing to sky-high valuations of companies like Facebook, then trading in secondary markets at $76 billion, compared with $1,400 billion today.
This sat alongside other media coverage that depicted the sector as gripped by a similar exuberance as seen in the late 90s, with publications pushing a bearish view that was welcome in the aftermath of 2008.
However, investors who heeded these media warnings and trimmed their technology holdings could have missed the remarkable 15-year rally that followed. The sector would later grow to represent more than a third of the global stock market by capitalisation, and the Nasdaq 100 has risen by more than 1,600% over the period.
Invesco QQQ Trust - Nasdaq 100 tracker fund total return
Source: Morningstar. Performance is shown on a NAV total return basis for the period 12/05/2011 - 31/05/2026. Past performance is not a guide to the future.
One reason magazine covers appear to be so adept at wrong forecasts is that for a particular asset class or market trend to be featured on the cover, it must have already achieved a level of cultural saturation to warrant the piece.
Institutional investors are likely to have long been aware of what is being covered, having already captured any opportunity, and could now be repositioning. So, by the time a trend is featured on a magazine cover, it is likely far less relevant to future market dynamics.
Bad news aversion
Even the way an investor manages their portfolio can be impacted by their news consumption. One piece of research measured how investors interacted with their investment accounts over a weekend, despite markets being closed, depending on the news headlines in the previous week.
When investors received good news on Friday that positively impacted their holdings, they showed a much greater tendency to log into their account multiple times over the weekend. On the other hand, when the news turned negative, investors would actively avoid logging into their accounts.
Over time, this can lead to a situation where an investor is overactive during times of positive market sentiment and underactive during downturns, an approach that could harm their overall strategy.
A professionally managed alternative
As a self-directed investor, it can be difficult to strike the right balance between not missing crucial market developments and avoiding the temptation to react unnecessarily.
For this reason, some may find it beneficial to delegate the asset allocation and portfolio maintenance process to a professional manager who can help achieve this middle ground.
At Wealth Club, our Portfolio Service has been designed as a dedicated long-term alternative to self-management exclusively for high net worth investors who don’t need advice. We offer five managed portfolios across the risk-reward spectrum, priced similarly to a DIY investing platform, and each offering broad exposure to global equities, bonds, and private assets.
However, as the Portfolio Service is non-advisory and does not provide personal recommendations, investors are responsible for choosing which portfolio, if any, is right for them. Additionally, even with a diversified, long-term approach, investors must be aware that any form of investment will involve accepting a degree of risk, and returns are never guaranteed.
A sensible long-term home for your wealth?
Wealth Club aims to make it easier for experienced investors to find information on – and apply for – investments. You should base your investment decision on the offer documents and ensure you have read and fully understand them before investing. The information on this webpage is a marketing communication. It is not advice or a personal or research recommendation to buy, sell or hold any of the investments mentioned, nor does it include any opinion as to the present or future value or price of these investments. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.
Alex Davies
Chief Executive
Alex was a board director at Hargreaves Lansdown, where he worked for 15 years. He was responsible for building Hargreaves Lansdown into the biggest direct-to-consumer SIPP provider in the UK with more than 150,000 clients and over £12 billion under management. He is a keen investor with a portfolio of shares, funds, student property, EIS and VCT investments.