I am working on this week’s WaPo column, based loosely on last week’s open thread on the value of the Financial Media.
I have a 23 bullet points I am trying to cut down to a dozen or less. Here are two:
Too Much Noise, Too Little Signal: The biggest problem most investors encounter is the sheer volume of the stuff. There is a vast sea of news items, most of which are meaningless to your portfolio. The vast majority of news items, earnings reports and economic releases are irrelevant to your investments.
I call this my Who Really Gives a Fuck about ISM? theory.
Any given company can have a better or worse earnings report. Any economic data point can be better or worse than expected. This is simple probability. The range of potential outcomes that are consistent with normalcy include both strong and weak data. Get used to it.
Learn to tune out the irrelevancies and stay focused on the big picture. Speaking of which:
Over-Emphasis on Short term: The politicos have a 24 hour news cycle; finance has a cycle of its own. Each quarter, earnings reports are released. (This also includes the pre-announcements period). Every month, we get numerous major economic reports: Employment Situation, GDP (and 2 subsequent revisions), New and Existing Home Sales, Leading Indicators, Consumer Sentiment, Retail Sales and Durable Goods Orders, etc. Every week, we get Jobless Claims, different treasury auctions, other minor reports. Part of the reason there is so much financial media is that every day, there is something different for people to write or speak about.
The simple truth is that most of these data points matter very little to the long-term health of your investments. What matters is the longer trend, and its occasional breaks and reversals. Everything else is filler.
This is the early draft; the Washington Post version will be far less coarse; their editorial policy is no F-Bombs . . .