Unfortunately for many investors the media noise has contributed to more sleepless nights than the actual consequences of the news itself. The media influences us all in a variety of ways, and we have all been guilty at some stage of assuming that what appears in the media is true. This is particularly true with “investment noise” and the behaviours which it causes amongst the majority of the population.
Over the last 12 months the media noise has been louder than usual with issues such as the European debt crisis, natural disasters, and global conflicts dominating the news headlines.
As a starting point it is worth remembering that the vast majority of news is backward looking and outlines what has already happened. Whereas when you are investing you are concerned about what is going to happen in the future which unfortunately without a crystal ball is impossible to predict. As an example Ireland’s share market had a return of over 15% for 2011 and it is widely regarded as a basket case. On the other hand our share market had a return of -11% for the same period and our economy was regarded at the time as one of the most resilient in the world.
Whilst what has occurred in the past is of interest to us all by the time it becomes public knowledge this information has already been reflected in the value of the investments. In addition to this most of the financial news is irrelevant to you and your long term financial plan. Some of the common factors that tend to distract investors in the short term are , market news, and forecasts, economic news and forecasts, and debates on whether we are in a bull or a bear market.
However despite this when it appears in the media many people are under the mistaken belief that whatever is in the media is true. However the media’s makes its money from the advertisers which pay to place advertisements with them, the more people that watch the news the higher the media can charge for the advertisements. To encourage us to watch the news, dramatic and sensational headlines are needed, and we see these everyday.
History has shown that even when dramatic events happen such as the 1987 crash, 1973-74 oil crisis, 9/11 disaster, or the 2003 Gulf war over the long term markets recover. A crisis today is a blimp on the radar over the long term.
At social events there is generally an advocate of the “actively trading is the only way to make money club” and I try to avoid these discussions but in my view actively trading assets is similar to playing poker at the casino, sometimes you will win but over time the house (ie casino) wins more often than you will. When considering this strategy it is worth reviewing your competition which in most cases will be large institutions with decades of experience and deeper pockets than you to spend on research, staff, systems, information and access to the companies themselves. It is a very difficult game to win for the average punter.
Whilst it is difficult to do in practice to invest successfully you need to ignore what appears in the financial media. The investment noise is an unwelcome distraction that commonly causes investors to act on emotion making expensive mistakes.
As Warren Buffet once famously said, “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
If you have any questions or would like assistance with your financial affairs please don’t hesitate to contact the Main Street team on 61730070 or via email firstname.lastname@example.org