Michael Pascoe at The New Daily in Australia made a confession a few days back. For a quarter of a century it was his job to provide daily financial market reports of one kind or another. Like all other daily financial markets reports, they were mostly rubbish. With a rough end to 2018, and 2019 beginning with more uncertainty than most, market reports are tending to sound a little anxious. That’s not so unusual – the tone tends to be either euphoria or anxiety.
Pascoe says those daily market reports were about as useful for investors as what yesterday’s weather was for deciding whether to carry an umbrella tomorrow. For traders, by the time the media reports market movements, they are too late to matter. For investors, the unit of time – a day – is too short to matter. So financial journalists are paid for doing stuff that mostly didn’t matter. And market reporting is worse now. Taking a daily snapshot of what happened was one thing, but with “live” reporting and 24-hour business channels, the constant gyrations have to be made to seem more dramatic to get attention. Every other movement is a “plunge” or a “jump”. The noise has been turned up louder. The market will have bad days, and sometimes bad years, but perspective is what matters.
The damage of constant loud noise is that it can scare inexperienced investors. It makes the stock market seem a much more frightening place than it really is. It also can make the more conservative end of the market appear as risky as the speculative end, leading novices to gamble rather than invest.
For an investor in or outside of retirement, having the appropriate mix of assets and patience about outcomes is more important than knowing what the market did today or this month or year. The trouble with repeatedly saying “keep perspective” is that it gets boring. People want to hear or read something different. What’s more frustrating is that a scary story finds it easier to do repeat business than a story about keeping perspective.
A study found being hyper-informed about investments didn’t make people more successful investors. This sounds perverse – surely checking up on how your investments are doing is a good thing? But the danger is that the more investors are exposed to news around their investments, the more they may see them going up and down – on a day-to-day basis it’s close to 50-50 as to whether the share market will be up or down. This ‘noise’ can cause investors to freeze or, worse still, it feeds on our natural aversion to any reduction in the value of our investments and thus encourages a greater exposure to lower-returning, safer investments.
1997 study by US behavioural economist Richard Thaler found investors with the most data [about how their investment is performing] did the worst in terms of money earned. Pascoe concludes that the trick is to have patience (evidence shows that patient people make better investors because they can look beyond short-term noise or are less inclined to jump from investment to investment after they have already run) and turn down the noise.
My Conclusion – Stop watching business channels and don’t spend too much time reading business newspapers.
Invest in yourself
Are you interested in learning more about investing & trading? Join our community of 20,000+ learners who have benefited from our online courses. We would also recommend signing up for news and updates using the form below so you can be notified of any events or workshops we host in the near future.