For the Best Long-Term Investment Results, Turn off the Media Noise
In a world where information travels at digital speed and resides ubiquitously across the web and cable news channels, investors feel smarter and more empowered. To a great extent, the playing field has been leveled, providing investors with access to the same information that was once only available to institutions and investment pros. Today, information is such a high-value commodity, it is constantly being churned out by a clamorous media and delivered across multiple devices to an insatiable public.
But, is this overabundance of information good for investors? The evidence indicates it can actually do more harm than good for most investors.
Headlines Sell but they can be Harmful for Portfolio
The challenge for investors is they are unable to react to events that trigger a market move, because the information is disseminated so quickly. Instead, they react to the market move, which is like trying to catch a moving bus. For example, when news of the threat of a China trade war got out last March, the DJIA plunged more than 700 points within a couple of hours. By the time small investors could place their sell orders or redeem their mutual fund shares, the damage was done. After being barraged with gloom and doom headlines following a 3,200 point plunge in February, the sudden and sharp March decline only confirmed their fears.
Bad News Has No Impact on Long-Term Investment Performance
What you won’t likely hear from the media is that, while a news story may be consequential in the near-term, it is unlikely to be of any consequence in the long-run. A steep drop in the market, or some other major economic event, may seem consequential at the moment, but their impact on the long-term returns of properly constructed investment portfolio is inconsequential. At the end of the day, it isn’t important whether stock prices are up or down because it has nothing to do with your investment returns over the next 10, 20 or 30 years.
Stop Drinking from the Firehose
Unquestionably, we all benefit from greater access to information. However, for most investors, trying to keep up with the news and events of the day can be like drinking from a firehose. It’s the media’s job to pump out as much information as possible, but you don’t have to drink from the hose, especially when you realize that the sources of information don’t really have your best interests in mind.
The noise is deafening out there, and there is not much a rational person can do except to turn it down and focus on their long-term objectives.
Certainly, it’s important to stay on top of the news and educate yourself, but you are much better off if you consume it in the context of your specific financial goals and long-term investment strategy. However, just consuming financial information and data isn’t enough. It needs interpretation and analysis. Human judgement is important in processing information and data into something useful. That is the value of trusted, unbiased advice to help you make informed decisions.
Read other Situation Analysis Articles