Finance

Prosper By Ignoring The Financial Press

Pretty much every day when the equity market techniques – whether it is up, down, or barely whatsoever – the financial mass media feels compelled to come up with some explanation as to the reasons the market do what it does. Explanations can be direct fairly, such as attributing a move to economic data, or they can be (to be polite) rather esoteric, as is often the case when the market goes up significantly in the absence of a clear driver. It is, of course, important to understand what’s happening in the world and the markets. For that reason, we are compelled to make some use of the financial and general media.

After all, they do report the news and internet and television allow us to get the news in real time. The problem is that individuals within the media are people (and salespeople). As a total result, whatever facts they record are inevitably colored with the emotions they carry and sometimes add a dash of spin directed to drum up more audiences (they are running businesses, in the end).

So instead of relatively dispassionate reporting of facts, we are treated to a deluge of (often conflicting) strong claims, judgements, and some facts tossed in for good measure maybe. Bad news sells well especially, so the financial media often harps on the negative side to get as much attention as you possibly can.

Unfortunately, we as investors suffer from interference from our emotions even before we turn on the television or enter a URL. Pick up any book on behavioral fund (a remarkable topic) and you’ll quickly find that the human brain developed under evolutionary circumstances that did not include trading.

As a result, we are hardwired to fall prey to a true number of common mistakes over and over. The only remedies appear to be either lifelong training and awareness, or utilizing “mechanical” investing vehicles (such as target date or balanced mutual funds) that take the emotion out of investing. When we start paying attention to the braying of the financial media, it becomes far more challenging to avoid being ruled from your emotions.

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It is normal to have a visceral a reaction to emotionally charged text messages. We are communicative herd animals as humans and in the age range past the person who did not pay attention to cries of alarm from other users of his tribe often became the victim. As a result many people pay attention to the financial press closely start making powered decisions using their money emotionally, and do themselves a complete lot of harm. So how can we as enlightened investors avoid this trap and maybe even take a bit of advantage of the problem? First, everyone should use some self-control and limit their exposure to the financial media.

If there is a particular interview worthy of watching then watch it but don’t leave CNBC or the Bloomberg channel on all day long. Second, trip to a price if you don’t are positively looking to buy or sell something on a specific, don’t constantly check the markets or the costs of your investments. It is improbable that things will move much intraday and by constantly examining you will get more unnecessary contact with the financial media.

In this respect, traditional mutual funds have an edge over ETFs: you merely see one price change each day. Third, when you are doing homework into a potential investment or reading the latest news release or SEC filings in one of your existing positions, stick to the known facts. Especially regarding deep value plays (which are valued because people hate the business), the financial media will inevitably play to the prevailing negative sentiment about a company and frequently obscure the facts.

Similarly, market darling will usually have nothing but nice things said about any of it whatever actually is happening at the business. With all of this swirling around, it is easy to take a ride on emotions and get swept away from the facts. Ignore the slant and make your own decisions.