How Much Stock Should We Invest In Financial Journalism?

No pun intended!  In many situations in life, the greater the amount of information a person receives, and the more current the information is, the better and more astute decisions that a person can make. However, investing is one particular area in which more information, the most up to date reports, and the news provided by consumer journalists can actually be harmful to your financial well-being.  I’m not referring to the second-by-second blips on the Bloomberg Terminal that traders and computer algorithms use to make instantaneous buys and sells, but rather the daily and evening news reports that you see every day.

Consider the profiles of mutual funds and mutual fund managers.  The quarterly profiles in Barron’s and the articles written in sources such as Money, Kiplinger’s and the Wall Street Journal tend to solely focus on the current, trendy funds or funds that outperformed their peers in the previous quarter.  However, a 3-month track record is considered to be nonsense statistically.  Furthermore, those who follow these profiles and invest in the trendy funds or the fund of the day are in jeopardy of suffering losses when compared to the indices. Rarely if ever is the next quarter’s hot fund the same as the previous quarter.

Today’s price movements, to a statistician, are meaningless white noise indicating nothing remotely significant about the future.  The market may drop today, be back up tomorrow, be down for a week, and up for a week.  During each of these time periods, analysts try to provide us with explanations of these random bounces.  We can’t help but to listen to their thoughts about what has happened to affect the investment outlook.

We have been told that the Fed is going to increase interest rates soon, the markets rallies have been growing old, and that markets valuations are reaching the max.  However, we heard the same projections last year, and the year before and so forth.  Despite these profiles and daily news reports, the markets increased and produced new record highs. 

Typically when the markets are at a peak, and when new money is chasing returns at the most perilous time, news reports are telling us how the markets have been on a bull run.  When the markets are declining, and it is the opportune time to invest, the daily reports tell us about a looming depression in the market. Going against what everyone is hearing and saying, rather than giving weight to this information can be difficult even for professional advisors. 

It is important to remember that the short-term drops in the markets can be excellent buying opportunities in the long run.  The domestic and international economies reflect growth over time in value generated by the millions of wage earners who go to work daily, contribute, and continue to build that value.  Individuals who stay the course and remain invested in the market have always eventually seen new highs, while people who tend to react to each short-term market report tend to not fare as well.  When investing in the market, it is best to turn off the white noise and remember that wisdom and discipline far outweigh the minute-to-minute updates or daily news reports.

-Justin Ladden-