What Greece Means To Investors, Part 2

Two weeks ago Greece had a problem. The country was on the brink of running out of money to pay its creditors. The Greek Parliament was being stubborn. European leaders were being generous. The country's financial tizzy spooked stocks all over the place. Then Greece agreed to a last minute deal, 401(k) plans quickly recovered, and it was over.

It's amazing how one little country with the same GDP as Puerto Rico can make media headlines. I mean c'mon. How can such an insignificant economy erase year to date stock market gains? It's not like the value of Apple will suffer because they're selling fewer watches to Athenians.

I have a few ideas why small events create chaos beyond what they should.

• Institutional traders think they can profit in the short term. Some will. Most will not.

• Wall Street makes money when investors trade. They'll do anything to convince investors now is the time to make a move. Ask yourself if a broker's recommendations are in your best interest?

• The media blows things out of proportion to capture viewership. Investors make the mistake of interpreting media noise as market trends. The financial media is entertainment. Nothing more.

• Professional and amateur investors have trouble disregarding emotions. The Market Overreaction Hypothesis suggests stocks will return to "normal" in the short term.

• Traders don't like unknowns, especially when some claim the market is already overvalued. What's interesting is even when minor bad news becomes better understood, stocks quickly rebound.

Before I Hammer Home My Point, Here's How Greece Saved Itself. For now... Last weekend Greece approved a number of fiscal reforms. Ironically, the agreed upon measures are more strict than what Greeks rejected just a week ago. I'm not convinced Greece would survive long at the poker table.

With the wave of a Eurozone bailout wand the country, Greeks were promised $96B in new bailout aid. The other side of the deal forces Greece into serious reforms. They're required to broaden the tax base to increase revenue, overhaul the pension system to reduce government expediture, and eliminate political interference in their financial sector.

Investors Can't React To Market Noise. And that's all this Greek "crisis" is. The S&P 500 has already returned a positive 0.4% gain (hey, it's still a gain) over the past 30 days.

I feel bad for all the investors that sold during the last week of June. They locked in their losses because emotions got the best of them. Were they smart enough to buy back in last Friday? No. No they weren't. That's the double whammy of attempting to time the market; you have to get subsequent guesses correct.

If You Stare At A Moving Object, It Will Appear To Bounce Around More Than It Actually Does. This tricks us into thinking we can predict what will happen next. Go to any website from the major Wall Street players. You'll notice a streaming stock market ticker illustrating daily movements. This is obviously done by design. TRADE TRADE TRADE!!! It's funny how they all advertise messages like "disciplined for the long run", yet somehow what happened 15 minutes ago in the stock market should alter your multi-decade long retirement investing strategy? Give me a break.

The Greek News Meant Nothing. Your retirement portfolio will not remember this event a year down the road. Be a smart investor and filter out the news. By all means, be informed. Just don't change anything when your brain tells you to.