Just a generation ago or so, the media diet of a typical investor boiled down to three staples: morning papers, evening TV news and some AM news radio spread between. But that was all before the www. — or the World Wide Web — or in some cases, Waves of Windbag Whining.
The news cycle today runs 24/7 and for all investors that means the voices of reason get drowned out in a noise floor that includes cable TV, YouTube, insider websites, outsider websites, blogs, online magazines, podcasts, newsletters, celebrity stock picker shows and more.
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“There’s so much information, it’s easy to get overwhelmed and then make one of two mistakes,” says Brian Barnes, founder and CEO of M1 Finance, a fee-based online broker in Chicago. “The first mistake is to do nothing and not invest, believing you need to be perfect before starting. The second mistake is taking action on every bit of news — trading in and out based on articles, price moves and cocktail chatter.”
What’s an investor to do, then, in an information-overload age when the happy medium seems more like the muddled middle?
“It’s helpful to build up your expertise and knowledge base as you decide to move beyond the basics,” Barnes says. “Any article or news item that teaches you something will broaden your horizons for investing opportunities when they arise.”
Then there is the opposite of that, which is preaching the good old fire-and-brimstone way. “The most hurtful parts of the cycle are the dire predictions, usually of doom and gloom,” says Brent Lindell, a financial advisor with Savant Capital Management in Madison, Wisconsin.
“For the last few months there have been dire predictions of doom all over the media, and today the market is up nicely and at highs,” Lindell says. “If one of my clients whom I talked off the ledge a couple of months ago had followed the advice of the doom-and-gloom story that led him to talk to me, his retirement portfolio would’ve missed a pretty good upswing.”
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Maybe the investment news armada needs a dose of its own shock and awe.
“The financial media bombards us with attention-grabbing headlines designed to get us to read their articles so they can sell more advertising,” says Bill Keen, founder and CEO of Keen Wealth Advisors, an independent advisor in Overland Park, Kansas. “‘Fear sells’ is perhaps one way to describe why financial media plays upon human emotions to draw more readers.”
Savvy investors know that it’s crucial “to look at the business and stock market cycles and learn how economic fundamentals — not noisy headlines — are what we should ultimately focus on,” Keen says. That is: Learn to move beyond the urgency of the times to find timeless wellsprings of rock-solid information.
Ask financial professionals where they go and you’ll hear answers like the one offered by Drew Horter, president and chief investment strategist at Horter Investment Management in Cincinnati.
“Examples of resources we like include Morningstar and dshort.com,” Horter says. “We recommend that clients go to as many independent resources as they can in order to avoid bias.”
Horter adds that perspective matters, too. You can be a stock market news junkie and succeed if you take on the role of a student. It helps provide a positive filter for all the information you collect — and when questions arise, you can always ask your advisor.
“The more knowledge you have, the more pertinent questions you’ll be able to ask your advisor,” Horter says. “The 24-hour news cycle is helpful in that it helps investors gain knowledge.”
Just be aware that too much information — and not knowing when to filter out the noise — can work against an investor.
“The entire concept of a 24-hour news cycle is hurtful,” says John Blood, CEO and chief investment officer of Efficient Advisors in Philadelphia. “First, it creates hours of programming time that must be filled, regardless of the value of the content. Second, it creates a short-term mentality that leads investors down a path of short-term thinking, reactionary behavior and a feeling that to be a successful investor, you must ‘outwit, outlast, outplay.'”
Indeed we may witness an investment reality TV show a la “Survivor” before we see financial newsmakers make headlines for the right reasons. Let’s say billionaire Warren Buffett catches a bad brain freeze at one of his Dairy Queens from eating a Blizzard too fast. His precautionary visit to the emergency room would be replayed at the top of the hour, every hour, on every single cable news channel in existence.
But if Buffett were to hold court on value investing — the bedrock philosophy that made him a billionaire in the first place — it’s easy to imagine the coverage getting bumped in favor of a breathless pundit’s prediction of an impending interest rate hike.
That explains why, when asked to pick one market barometer in the media that’s worth watching, Blood replies: “Either ESPN or The Food Network.”
[See: 10 Ways You Can Invest Like Warren Buffett.]
In other words, steering clear of the latest Wall Street soap opera “keeps investors focused on what truly matters,” Blood says. “Investment behavior should be geared towards the long-term. As one of my mentors in the industry quipped, ‘Investments are like a bar of soap … the more you handle it, the less you end up with.'”
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The 24-Hour News Cycle Is Horrific for Investors originally appeared on usnews.com
