The Tyranny of the Negative Headline
- There is no shortage of scary headlines in the news, whether they’re talking about the coronavirus, the economy or climate change.
- Today, Nicholas Vardy takes a deeper look at the truth behind the headlines and how wealth builders should respond.
“Coronavirus in the U.S.: An Unrelenting Crush of Cases and Deaths,” screams a May 5 headline in The New York Times.
The country is still in the firm grip of a pandemic with little hope of release. For every indication of improvement in controlling the virus, new outbreaks have emerged elsewhere, leaving the nation stuck in a steady, unrelenting march of deaths and infections.
Alas, this is nothing new.
Scan any newspaper in any part of the world at any time, and disaster is always looming on the horizon.
Whether it’s the rise of political populism… an unexpected natural disaster… climate change… or a looming global pandemic, the world is always coming apart at the seams.
Even as the coronavirus crisis ebbs in the U.K., the BBC is reigniting warnings about climate change, lest Brits emerging from lockdown grow too complacent…
“Climate change: More than 3bn could live in extreme heat by 2070.”
This relentless onslaught of bad news gives the impression that the world has never been more chaotic, uncertain and unsafe…
As Alexander Green has pointed out many times, the exact opposite is the case.
We are living longer, healthier lives with a higher standard of living than ever before.
And as Warren Buffett points out, if you had the chance to choose any time and place in history to be born, the answer is always the same. “You’d pick today, and you would pick America.”
Pessimism: A Natural Addiction
Our addiction to bad news is perfectly natural.
Psychologists have found that we humans have a natural negativity bias.
Our brains are attracted to bad news. We have evolved to react quickly to potential threats.
Humans who paid attention to negative information lived longer than those who looked only at the positive.
One incorrect assumption (“No, that’s not a bear behind the bushes.”) could cost you your life.
Three Reasons Pessimists Will Always Thrive
No. 1: Bad news sells.
Of course, the media doesn’t need evolutionary psychologists to tell them about their readers’ addiction to negative headlines.
Bad news always sells. Or, as every journalist knows, “If it bleeds, it leads.”
Newsstand magazine sales increase by roughly 30% when the cover is negative rather than positive.
On the internet, negative headlines have a 63% higher average click-through rate than positive ones.
The reverse is also true.
The Russian news site City Reporter tried an experiment. It reported only the good news to its readers for an entire day.
It promptly lost two-thirds of its regular readership for that day.
No. 2: Pessimists are fashionably smart.
Intellectuals have always mocked optimists for being dumb.
Consider the case of Dr. Pangloss – a fictional character in the 1759 satirical novel Candide by French Enlightenment thinker Voltaire.
Voltaire relentlessly mocks Pangloss for his belief that humans are living in the “best of all possible worlds.”
Pangloss embodied the naive optimism that sardonic intellectuals like Voltaire disdained and derided.
Among politicians, policymakers and the intellectual elite, pessimism is almost a requirement.
Pessimism equates to credibility and intelligence. Optimism is callow and naïve.
No: 3: Pessimists are never wrong, just early.
History is littered with experts who predicted the end of the world – and (so far) got it wrong.
My favorite story involves Stanford professor Paul Ehrlich who published The Population Bomb in 1968.
This bestseller was Malthus’ An Essay on the Principle of Population for the 20th century. It argued that the rate of population growth was quickly outstripping growth in the supply of food and resources. It predicted hundreds of millions would starve to death in the 1970s and 1980s.
(I remember my primary school classroom had dozens of copies of Ehrlich’s book. Pittsburgh Public Schools was preparing us for the impending dystopia.)
Emboldened by his more than a dozen appearances on Johnny Carson’s Tonight Show, Ehrlich claimed, “If I were a gambler, I would take even money that England will not exist in the year 2000.”
Business professor Julian Simon offered to take that bet or, more realistically, “to stake US$10,000… on my belief that the cost of non-government-controlled raw materials (including grain and oil) will not rise in the long run.” (I recently read Yale historian Paul Sabin’s book The Bet, which details this intellectual rivalry.)
Ehrlich lost the bet.
But then he publicly compared Simon to the man who jumps off the Empire State Building and shouts halfway down that everything is going fine.
Pessimists are never wrong.
They are just early.
How to Use Pessimism in Your Investing
What, if anything, does all this have to do with investing?
I’ll highlight two things.
First, understand that most top investors are optimists.
Instead, they owed it to their calm, measured and optimistic temperament.
Second, the best investors understand that most people do fall victim to media-induced pessimism. And that represents opportunity. Buffett speaks of taking advantage of Mr. Market’s mood swings. Templeton invested where the “outlook was the most miserable.”
You don’t need to be like Voltaire’s Pangloss and naively believe that we are living in “the best of all possible worlds.”
But understand that – despite the COVID-19 pandemic – the world is in a better state than it’s ever been.
Don’t fall prey to the tyranny of the negative headline.
About Nicholas Vardy
An accomplished investment advisor and widely recognized expert on quantitative investing, global investing and exchange-traded funds, Nicholas has been a regular commentator on CNN International and Fox Business Network. He has also been cited in The Wall Street Journal, Financial Times, Newsweek, Fox Business News, CBS, MarketWatch, Yahoo Finance and MSN Money Central. Nicholas holds a bachelor’s and a master’s from Stanford University and a J.D. from Harvard Law School. It’s no wonder his groundbreaking content is published regularly in the free daily e-letter Liberty Through Wealth.