Who knows how long these good vibes will last? Unemployment is still high. Our economy still seems fragile. There is no solution in sight to our national debt and deficit spending problems. There have not been any sightings of Republicans and Democrats sitting in a circle singing Kum Ba Yah. The world is still a very dangerous place.  here is no telling what tomorrow will bring.   

During another bleak period of our history, Franklin Delano Roosevelt said, “The only thing we have to fear is fear itself.” He uttered these words 80 years ago on the occasion of his first inauguration in 1933 when the nation was in the grip of the Great Depression. FDR was not trying to minimize or dismiss the difficulties that confronted our country at the time.  Instead, he was trying to help people gain perspective during one of our darkest times. He knew that one key to dealing effectively with any situation is to not let your emotions get the best of you.    

Pogo, the main character in Walt Kelly’s classic comic strip of the same name, said: “We have met the enemy and he is us.” Certainly this is true for investors who allow fearfulness to dominate their decision-making process. Those who have been exiting the U.S. stock market for the past 4 years are proof of that.  They missed out on unusually good stock market returns. Those that are jumping back into the stock market based on the fair winds that seemingly now prevail may also regret letting their emotions influence their investment decisions. 

It is hard to avoid getting swept away by the headlines of the day.  In the United States today, there are approximately:

• 13,000 newspapers (1,400 of them are delivered daily)
• 20,000 magazines
• 15,000 radio stations
• 1,800 full power TV stations (and many more low power stations)

The average household receives 118.6 TV channels. News flows 24/7. 

Then, of course, there is the Internet, which conveys news through e-mails, Web sites, blogs, pop-ups and social networks in staggering volume. There is simply no way to measure the number of units of good and bad news to which we are subjected every day. 

So, if we can’t avoid the headlines, how do we at least prevent ourselves from being unduly influenced by them in making investment decisions? Here are some thoughts that may help. 

Headlines and stock market returns are not correlated. The world is, and always will be, full of problems. Those problems will be prominently featured in the headlines. There isn’t room here to catalog all the ugly headlines I have read in my lifetime, but a dollar invested in the S&P 500 Index in 1951, the year I was born, has grown by over 55,000 percent -- an annualized return of 10.7%. Likewise, there is no evidence that happy-go-lucky headlines are precursors of rising markets.

FDR was right -- fearfulness undermines good decision-making. It engages the ancient part of your brain that houses the “fight or flight” response, which is a vestige of our primitive past. When making investment decisions, engage the rational, analytical part of your brain. If there is reason to be concerned or cautious, act accordingly. But don’t act emotionally or out of fear. 

The herd is almost always wrong. Warren Buffett said: “Be fearful when others are greedy and greedy when others are fearful.” I wish he had said “Be cautious when others are greedy,” because I don’t think it is ever a good idea to be fearful in investing. But his basic premise is right on target. There is comfort in the herd, but if you want to invest successfully you must be willing to step outside of that comfort zone and go against the herd.