Current market environment performance of dynamic, risk-managed investment solutions.
By David Wismer
In my 13 years of working with Flexible Plan Investments (FPI), there has been no shortage of impactful or market-moving events—each one testing how investors process news and uncertainty.
Everything from contentious election cycles to natural disasters, domestic strife, landmark Supreme Court and national policy decisions, geopolitical tensions, inflation spikes, tariff uncertainty, and—of course—the COVID pandemic.
We react to these events as human beings first, then as concerned investors.
If you are anything like me, much of your attention over the weekend was on the dramatic developments in the Middle East.
As I write this article on Monday morning, the reaction of financial markets—even for oil futures—has been far more muted than I would have expected. (But I have learned the hard way to never try to predict the markets—and they could move dramatically in either direction at any moment.)
I also took some time to look at several pronouncements from major Wall Street firms on what to expect moving forward. There is hardly consensus.
One prominent firm stated, “If this conflict has no meaningful downstream impacts on growth or earnings, any negative stock market response has the potential to be short-lived.”
Another noted, “Even the possibility of [energy] disruption can quickly affect production costs, consumer prices, monetary policy expectations, market sentiment, and the broader outlook for growth and inflation.”
How news affects investor behavior
While I am not an investment expert, as a communications specialist, I find the impact of “news” on investment decision-making and investor behavior to be both meaningful and complex.
News-driven sentiment can help fuel wild market swings, often overshadowing time-tested technical-analysis tools such as pattern and trend recognition, mean reversion, relative strength, moving-average analysis, and supply and demand indicators.
As Investopedia explains, government news releases—and really any major news event—can move markets quickly:
“In the short term, these news releases can cause large price swings as traders and investors buy and sell in response to the information. Increased action around these announcements can create short-term trends, while longer-term trends may develop as investors fully grasp and absorb what the impact of the information means for the markets.”
Two points are worth noting here:
1. Short-term swings have been amplified by technology. Large institutions increasingly use artificial intelligence and sophisticated news-based trading programs to respond instantly to headlines. This leaves little opportunity for the average investor to “compete” in the short term.
2. Longer-term trends are often counterintuitive. Immediate market reactions may not match the true significance of the news. How often have you seen a “Fed announcement day” trend reverse within 48 hours? Likewise, haven’t you often wondered who decides when “bad news is good news” (and vice versa)? Again, an individual self-directed investor is often left in the dust.
A behavioral finance expert and Wall Street veteran addressed many of these issues in the article “How much attention should you really pay to the news?” He noted that both market professionals and individual investors face behavioral pitfalls when interpreting headlines:
“The fact is that our brains already employ a host of shortcuts to deal with all of the information we are currently exposed to. We use availability bias to give more weight to the most recent information. We use representative bias to overweight anecdotal information. And we use herding to overweight what others are doing. All of these are ways in which the brain arbitrarily reduces the available information to something that can easily support a decision. None of these heuristics make the decision more valid or accurate. …
“It is certainly important for financial professionals—if not all investors—to stay well informed on the latest political, business, economic, and market developments. But it is equally important to recognize that short-term, news-driven investment decisions are generally not a wise course of action—especially for individual investors who may lean toward overreaction.”
FPI’s approach
FPI was built around quantified, active investment management and multi-strategy diversification—with a strong focus on mitigating risk. (You can read more about FPI’s philosophy on research and strategy development here.)
FPI is deeply attuned to market-driving news and data, but, as has been pointed out in this space before, “There will always be a bullish, bearish, and neutral way to interpret the news that the financial markets are faced with every day. Which one is correct? Who can say?”
FPI may have opinions on the economy or political developments, but its investment process remains grounded in data and discipline. As Peter Mauthe, FPI’s now-retired VP of business development, once put it, “Those opinions have no bearing on how we make investment decisions. Instead, we are focused on the data, rule sets, and results that help guide us to being invested on the correct side (long, inverse, cash) of all markets. … Flexible Plan views the news of the day, week, or month objectively and agnostically. We are not concerned with ‘being right in our view.’ We are concerned with being on the right side of the trend of each of the markets (stock, bond, alternative) in which we participate.”
The bottom line
FPI emphasizes the importance of a well-defined investment plan and long-term perspective that aligns with an investor’s personal objectives and risk tolerance. That approach helps investors stay on track through full market cycles and avoid impulsive decisions driven by short-term news.
Whether markets are highly volatile or relatively calm, FPI offers a holistic portfolio approach and risk-managed strategies designed to adapt to a wide range of market environments.
(If you have not already seen this article by FPI’s founder and president Jerry Wagner, it is well worth a look in understanding the company’s 45 years of investment-management evolution, “Keeping the maps updated: Asset management for a changing world.”)