The Harm in Financial Journalism
In most areas of our lives, the more information we get and the more up-to-the-minute it is, the better we can make decisions. However, in investing the opposite is true, which can sometimes be difficult for us to accept.
I’m not talking about the second-by-second blips on a Bloomberg terminal that traders use to make quick-twitch buys and sells. I’m talking about the news reports, cable TV investment reports, and investing articles that you’re bombarded with on a daily basis. The news and data supplied by these journalists is almost always harmful to your financial health.
How? Consider how attention is given to mutual funds and mutual fund managers. Most of the focus is usually on the hot funds—that is, funds that outperformed the market in the previous quarter. Even though three months’ worth of track record is statistical nonsense, the hot fund manager is interviewed with breathless deference normally given to a certified genius. It is interesting that the next quarter’s genius is seldom the same as the last.
When we aren’t reading about hot managers, we’re hearing about the daily movements in the stock market. Even though today’s price movements tell us nothing significant about the future, analysts try to tell us the causes of these random bounces. They would be more productively employed trying to explain the “causes” behind each of the waves in the ocean, yet we can’t help listening to their plausible explanations as to why these short-lived events should alter our investment outlook.
Today we’re being told that the market rally cannot continue, that the Fed is going to raise rates soon and that market valuations are lofty. The problem is that we were hearing these exact same things last year and the year before (remember?), and still the market churned ahead, cranking out new record highs.
Unlike just about any other activity you might pursue, the best, most astute way to invest is to turn off the noise and let the markets carry you where they must. Investor sentiment will swing around with the unhelpful prodding of journalists and pundits. However, people who stay the course generally benefit from markets that are efficient over the long-term, while people who react to every positive or negative report are rarely better off for it. When it comes to the markets, wisdom trumps up-to-the-minute knowledge every time.
Maybe somebody should tell that to the journalists.