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What do the financial headlines really mean?


Horse in the shadows

I’m the first to admit I’m no expert when it comes to horse racing, so hopefully you’ll forgive my ignorance. During my daily read of the major newspapers, I came across this headline in a major Australian paper:

“Trailblazer equals Phar Lap’s winning streak with triumph at Flemington.”

Wow! I thought. After 80 years, the mighty Phar Lap has been equalled!

Phar Lap’s legend has been passed through every Australian generation. According to Melbourne Museum, his exhibit continues to be its most popular. Intrigued, I read the article.

Only then did I discover that Phar Lap’s record of 14 consecutive wins has been beaten many times – Trailblazer being the most recent in a string of successful horses, including the famous Black Caviar with 25 wins.

That newspaper headline cunningly grabbed my attention, yet having read it, I felt betrayed somehow… even foolish.

It reminded me of an urgent call I’d received recently from a client. Brett is one of those guys you speak to a couple of times each year to review his portfolio – until one day a couple of months back.

Brett had seen this headline on a national news site:

“Australian shares slump amidst global economic fears, $30 billion wiped out.”

He was in a bit of a panic so I immediately checked out the article.

Sure, global markets were in turmoil over political uncertainty, but the article explained Australian shares had, “…slumped to five-and-a-half week lows.”

Excuse me?

If the markets had slumped to say, five-and-a-half year lows, Brett’s concerns might be justified.

In fairness, the article elaborated, identifying sector fluctuations and quoting figures. Too late for Brett who was already spooked and suggested selling his shares to buy fixed interest assets before his losses became greater.

Brett is not alone. Time-poor, many people scan headlines and subsequently make financial – or other – decisions in haste.

Recently, I read this headline in the financial press:

“Capital gains tax increase set to push up property prices.”

My immediate concern was that I hadn’t realised Capital Gains Tax (CGT) was rising. Reading further, I discovered the article was speculative; talks were taking place to determine whether current tax breaks should be cut.

The headline had captured my attention, but the reality of the situation was not as worrying as I’d first thought.

It pays to get the facts, right?

Fortunately, Brett contacted me before taking action. I was able to calm him down by giving an overall picture of the global situation and relate it specifically to his investment portfolio and personal strategy. Had he not consulted me and acted on his impulse of selling his shares, his outcome may have been quite different.

Anyone with horse racing expertise would have laughed at my naïve conclusion about Phar Lap, and but for a temporary red face, I’d have recovered.

They say the devil’s in the detail, and it certainly holds true for most things in life which is why we see a doctor if we’re sick, or a mechanic if the car’s playing up.

Accordingly, we should never underestimate the value of professional financial advice.

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