In investing it is very easy to fall for investment porn. If you switch on the news channels, you will find anchors telling you that the market crashed because of some announcement. But the thing is that it is highly unlikely that the action of one person or one company can make a dramatic impact on the market.
The descriptions are more the news anchors desperately trying to attach reason and some sense of control to an un-controllable and random market. Simply put, the market moves up when there are more buyers than sellers and the market moves down when there are more sellers than buyers. The rest is all hearsay.
Unfortunately, if that’s what TV anchors said, they would not get too much viewership. And so, they create this sense of drama around the minute-to-minute fluctuations in the market. Over time this has extended to blogs and other media outlets. You will have websites that have a cult following that track the movements of investment gurus that promise to find elusive “multi-bagger” stocks.
Whilst this information is certainly entertaining and even in some cases addictive, by the time someone reads or even hears about the news it is probably too late to act on it. And, in the case of following investment gurus, it is hard to know what the rationale behind any stocks they may have traded in.
For example, a fund manager may have bought a company solely with the intention of parking some spare funds for a few months – but an outsider might think this is a long-term high conviction holding he has made. Your objectives, time horizons and risk tolerances will likely be very different from the investment guru. And so, acting on that information without doing proper research can be dangerous for your financial health. As they say – if you put garbage in, you will get garbage out.
The veteran journalist Shekhar Gupta has a popular show on YouTube called Cut the Clutter in which he tries to remove all the noise from the headlines of the day to focus on what is important. In a similar manner, investors should cut through the clutter of daily financial news and noise and really focus on the things that are in their control when it comes to their investments. It is very difficult to do this because so much of the news and media is about instant gratification. But doing so and focusing on what really makes a difference to your financial plan will lead to much better results over the long term.