As an investor you have to consider lots of information before making an investing decision. In the days of 24 hour news coverage it’s easy to get distracted and question whether your investment strategy is a good one or whether the people on TV are right about what will happen in the future. The truth of the matter is that there is news worth listening to and news that is definitely not worth wasting your time on. The good thing about it is that it’s not too hard to distinguish what is useful information and what is not if you know what to look for.
The Myth That TV Pundits are Expert Investors
We’ll start off by saying that 99% of what is being said in daily financial news commentary is irrelevant noise. It can hardly be considered news and may be more appropriately classified as entertainment. These shows generally focuses on the day’s events and on the short term impact of those events on the stock market and individual companies. They also tend to follow a typical format of providing a headline and then debating what that means to the average investor.
For example, a popular topic is covering the FED’s decision on interest rate adjustments. You may heat that interest rates are going up, so stocks must go down, but on the other hand if investors had been expecting the rise in interest rates then it should already be priced into the market so there would be minimal impact to stocks. On the other hand if the FED doesn’t actually raise interest rates what does that tell us about the state of the economy. Does that mean that we’re headed into a recession and the FED doesn’t believe the economy can stomach a rate increase? Such guess work about decisions outside of your control is harmful to investing. The long and the short of it is that it is just someone’s opinion and ‘spin’ on financial events and should not be considered the primary information used to make an investment decision. In fact investing on news based on daily news and short term implications is useless and dangerous.
Empirical evidence will show that TV personalities are not great investors. You may assume that because they are on TV talking about finance topics that they are expert investors and know something you don’t. However, if they were as savvy as you have assumed you might be wondering why they are even working at a TV station in the first place instead of using their profound knowledge to run a multi-billion dollar conglomerate. There is truth to the Warren Buffett quote that:
Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway.
Someone else’s opinion on news shouldn’t be the driver in how you invest, period. If you’d still like to participate in financial entertainment news you should watch market news on delay. Record your favorite show and watch it a month after it airs, then you can begin to compare that was talked about with what actually happened since you recorded the show.
Invest in Fundamentals
Events that happen in the market are outside of your control. That is a fact. But what is in your control is which companies you decide to invest in. And taking a long term view in your investment strategy will mean that even short term market fluctuations caused by panic selling will have little impact on your success. You don’t have to abstain from knowing what’s happening in the world you live in, but you should consider who you take advice from carefully, even if that includes the so-called experts on television.
The recipe for investing success revolves around being knowledgeable about the companies you’re interested in and pulling the trigger when you’ve done your research. We have previously shared our investment philosophy in the How to Become a Successful Value Investor in 3 Steps post. When it comes to financial news the key will be to remember that most of it is just entertainment that adds to the noise and distractions that you come across every day. The more successful you are at tuning out the noise the better you will be as an investor.