Ignore the news for better returns

When people picture successful investors, they think of someone watching all the news all the time, especially when the market is open. They picture someone reacting to that news, too: “a bad storm hit Florida, short orange juice futures now!” or “Alcoa just announced bad earnings, dump our position!”

The reality is just the opposite. The best investors want to know all about the companies they invest in, but they don’t trade that news or react quickly to it (people who make a living trading do, but those folks aren’t investors, and, if you are reading my blog, you probably aren’t a trader).

I always get a surprised look from clients and prospects when I tell them I don’t check prices all day long. I suppose they think that is what good investors do, but that’t not true (see a recent article by Chuck Jaffe and MarketWatch).

One reason is that investing is long term oriented. It’s not about what happened today, but what will happen over time. Investors focus on years of earnings, not one quarter’s. Their attention is on competitive positioning and economic value-creation, and their view is unlikely to change because of one data point on one day. To successfully invest over the long term, you need to think and act long term, not on the range of the moment. 

Another reason is that good interpretation of new information takes time. A good investor needs to integrate new information into a mosaic of information they’ve already assembled and thought about. Does this new information contradict what I think I already understand? Do I need to reconsider my opinion? What other information would confirm or deny this new data? Thought and interpretation can take days, weeks and even months–not seconds.

Headline information is also likely to already be priced into securities. By the time the news reaches people like us, it has already been acted upon by the traders who focus in that area. Like Baron Rothschild, they are tied into information networks that cost a lot of money and disseminate information much more rapidly. By the time we see it, prices have almost certainly already moved (usually hours or days ago).

Someone once asked Warren Buffett when was the last time he checked the price of his holdingw. He said he thought it was a couple of weeks ago. When you are focused primarily on the fundamentals, you don’t need daily or minutely price quotes. The best investors have the same attitude. 

If you focus on the fundamentals and not the daily news, I can almost guarantee you’ll get better investing results, too.

Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.

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Ignore the news for better returns

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