We spend hours each week consuming news because we want to stay informed about current events. However, have you stopped to think if it’s bringing you valued and worthwhile knowledge? The investment process of the majority of investors is built on “watching the market”, consuming a considerable amount of information, and trying to stay on top of the occurrences happening worldwide. This article will focus on opinions on why this might not be a good approach for a successful investor.
News is, by definition, a report of recent events, something that doesn’t last. It exists for only a moment before it changes. The media feeds us small bites of trivial matter, tidbits that don’t concern our lives and don’t require thinking.
For a while now, news has become easier to distribute and cheaper to produce, decreasing the quality. Between the hundreds of information being released each day, it’s nearly impossible to find the signal in the noise.
One might think being on top of the latest news is essential for investing successfully. The message that short-term events matter to investors is utterly wrong.
Many investors experience poor results because they pay too much attention to the news and respond to events too much in advance before the consequences of these events become clear. It is unlikely you will come across someone who has problems with an investment portfolio because they didn’t stay glued to the breaking news and react to events rapidly. Instead, the opposite is true.
Investors who act emotionally to news tend to lose money in the stock market instead of investors who focus on the bigger picture and stay invested even during times of negative media coverage.
The stock market is remarkably buoyant. The average annualized return of the S&P 500 since 1926 has been 10.49%. This is a much higher rate of return than bonds, which have historical returns of 5 to 6% over the same period.
An example of this buoyancy is recent: The pandemic-related stock market crash of 2020 had the most significant one-day loss in Dow Jones history, but the market quickly recovered by April 2020.
So here are three short things you can do to reduce the amount of news you consume:
Avoid the 24-hour TV news cycle: One of the worst things you can do is have a news channel running in the background during the day. With 24 hours to fill, news channels have a powerful incentive to report on sensational news to keep you watching.
Turn off your phone/computer notifications: This means no pings from apps alerting you to breaking news. Take charge of the way you consume news and media. Do it on your terms, deliberately and infrequently.
Before reading an article, ask yourself: is this good for me? Is this important? Is this going to stand the test of time? Is this dense with detailed information? Is the person writing someone who is well informed on the issue?
If you must read the news, read it for the facts and the data, not the opinions. Should you be looking for the top of the line investment articles, we can recommend you Yahoo Finance and Seeking Alpha. We are also preparing to integrate our Summary of Financial Articles software to summarise all the information found on investment websites like the ones stated previously into a simple market sentiment indicator in our Analytical Platform web application. Alternatively, you can forget about all the market news and invest according to one of our investment strategies. We have our own proprietary AI-powered stock-picking model that picks the stocks for you.