Investors Must Be Careful to Avoid News Overload

Last month we were delighted to be asked to write another piece for The Sunday Times around news overload and investment. It went down so well that we thought you’d enjoy reading it too.
 
 

Go placidly amid the noise and haste

If you’ve ever turned down the radio in the car so you can ‘hear yourself think’, you’ll know how it feels to suffer from sensory overload. Lowering the volume shouldn’t affect your ability to read signs or choose the right exit, but it does seem to help.

When your senses are under assault from a barrage of information, some of it relevant, some not so much, bad decisions are often the outcome. Too much information is like carrying too much shopping, you can’t keep your eye on everything – sooner or later you’ll start dropping things.

It’s the same with investing. We all want to be good investors and common sense tells us to stay engaged, but we also need to know how to screen out the noise.

I read the news today, oh boy

Remember that time the news left you delighted with the state of the world? No, of course not. Humans love gossip and intrigue, neither of which make for cheerful news stories. But finance and economics, that’s serious news, right? Surely financial news reporting is well balanced, considered and calm? Nope.

You’ll be familiar with stories like “billions of dollars wiped off the markets”, but did the news ever tell you about the billions that were added slowly and steadily over the years? You’ll have heard that the markets “reacted with wild fluctuations”, but did you hear about the constant presence of volatility, or its key role in growing your portfolio over the long term? No, because there’s no ‘wow’ factor (although achieving the life you really want after years of sticking to your plan deserves a ‘wow’).

Bar of Soap

Think of your investment portfolio as a bar of soap – the more you touch the bar of soap, the smaller it gets. Can this be true for your investment portfolio? Yes. Reacting to “market news” has an awfully bad habit of not working out. Market timing just doesn’t work. Sure, you can get lucky once, maybe twice but there is no evidence to show it can be done consistently.

Keep in mind too that making changes to your investment portfolio almost always costs you money in fees. Long term investors win in the end. Every. Single. Time.

Rip Van Winkle, investor extraordinaire

Poor old Rip, there he was minding his own business when a guy got him so drunk he slept for 20 years. Now his beard is a mile long and his musket is an antique, but if he’d planned out an investment strategy before his abnormally long snooze, he’d be in a strong position. He’d have left his investments untouched for two decades, allowing them to quietly do their thing without interference.

I jest, of course. I’m not saying ignore your investments. For one thing, any good financial planner would check in regularly to make sure your plan and investment portfolio is still right for you. The point is, the evidence tells us that leaving your investments to grow according to your plan is the one strategy that pays off. The next 20 years will bring more big headlines – markets will rise, fall, and rise again. There’ll be new bubbles that grow and then burst – the trick is not to chase after them like a Labrador snapping at butterflies.

Stick With The Plan

If it sounds like I’m telling you to stick your fingers in your ears, I’m really not. It’s just that reading and reacting aren’t inseparable. Bruce Lee was blessed with lightning reactions, yet even he said, “true power is sitting back and observing everything with logic”. I couldn’t have put it better myself.

There’ll always be scary headlines just as there’ll always be someone promising they can beat the markets and guarantee returns. They can’t, any more than they can keep winning at heads or tails, but while you’re chasing quick wins, you’re incurring charges, threatening your future and causing stress you don’t need.

Investing isn’t a test of bravado, it’s an exercise in holding your nerve – it’s not so much ‘who dares wins’ as ‘everything comes to he who waits’. Warren Buffet puts it like this: “The stock market is a device for transferring money from the impatient to the patient”.

Even if ‘timing the market’ gets you ahead (for five minutes), what does ‘getting ahead’ mean anyway? Ahead of everybody else? As a reference point, ‘everybody else’ couldn’t be less relevant; the only yardstick that matters is the one you’ve put in place with your financial planner.

Turn the radio down, concentrate on the destination and most importantly – stick with the plan.

Carl Widger
Director, Metis Ireland
cwidger@metisireland.ie
Twitter @CarlWidger