The market is random. If there are more buyers than sellers, then the price of a security will go up. That’s basic economics. And the same thing happens in the opposite direction – if there are more sellers than buyers, then the price will go down.
Normally there will be a driver of this mismatch in pricing. And it is important to understand what is going on in the financial markets to understand the bigger picture and how it could affect your investments.
However, news channels and social media have mastered the art of making this news addictive. They tend to give second by second coverage of what is going on in the market and try to put logic to that after the fact.
Think about it – the Nifty 50 stock market index is made of 50 companies. The price of each of those 50 companies goes up and down based on specific new information related to that company. Sure, there may be some big macro events that can move all the companies at the same time – but on most days it’s just random and the movement of the market is a collection of those individual price movements.
My biggest pet peeve is when news channels or radio say that the market moved up or down 300 or so points because of some news announcement. What they don’t tell you is the percentage move of the index. A 300 point move on the Sensex – which today is around 60,000 means that the market moved by half a percent. All that drama for such a small movement.
Paying too much attention to this news without having that context can make an investor make hasty and emotional decisions – which is not a good thing. On the other hand, you can’t just switch off all the news and put your head under the ground and pretend nothing is happening – having context on your investment matters.
So, what is an investor to do?
If you want to be a great investor you must be able to have a very fine filter of who you follow. Today the world is full of information overload. In such a world, curation of content and finding the right people who will help you manage your money with less time, stress and emotion is critical. You must constantly ask yourself: why am I reading this story? Is it materially going to impact my finances? This will free up a lot of your time. Time that you can spend focusing on your financial goals and on managing your risks.