I made a fortune in the stock markets by reading the news.
Said no investor ever.
It is high time for investors to come to realize that most of what goes on in the financial media are merely market noises and rarely add any ounce of value to the decision-making process.
You have to understand that the financial media exists to feed us with the latest news in the markets, but most of the time, many of these news do not put a weight on the fundamentals of the companies. They may even use words to sensationalise the news.
The biggest problem about being too engrossed with the financial media is that it distorts our decision making process as an investor. Take a look at some of these headlines below.
These were the very news that were released near the market bottoms.
There were also news (see below) that would have scared the sh*t out of you. If you were already invested, you probably would have sold everything. If you were not already invested, you would never have dared to.
On the other hand, how do you feel when you see such headlines (see below)? These were the very news that were released when we were at the market tops.
Source: Markets Insider
As investor Peter Borish once said, “Price makes news, not the other way round. A market is going to where a market is going to go. The floor can not exist without the people upstairs. The upstairs cannot exist without the people downstairs.”
Don’t you find it astonishing that no one knows where the market is heading next, but after it happens, all these “analysts” know perfectly the reasons why it happened? The same goes for content creators who wrote about “5 reasons why it is not hard to know why Meta (formerly known as Facebook) is not going to do well”, right after it crashed in early 2022. They are going to be the very same group of people who would have written ”5 reasons why Meta is poised to fly further” had Meta shot up in its stock price instead.
And after you read these articles, it will result in what we call confirmation bias (obviously because now that the price has fallen and being fed into the various supporting reasons) and you continue to google the sub points to do your further reading. You will be convinced that there will be more headwinds ahead and you would rather sell away your Meta share at a loss immediately.
The point about the above paragraph is not to talk about if Meta is going to do well in the future. It could have been any other stock but of the same logic. You can easily substitute Meta for Apple, Mastercard, Netflix and the list goes on. What they are all trying to do is to use various reasons or news to justify why the stock moved in a certain way.
Many retail investors would think that by reading such articles or watching such videos is equivalent to them doing their own homework or “due diligence.” That’s not true.
Investors should be looking at the hard numbers on the financial statements and not just rely on the headlines or qualitative arguments. If earnings drop, was it a result of lower revenue or increased cost? Was the increased cost due to the inability to manage cost with the suppliers or was it due to research and development costs that is meant to create new demand for a new revenue generator in the future? Would this new product have a strong demand and boost the bottomline? What is the total addressable market that we can compare against or would it create a totally new unmet need of greater demand? These are just some of the thought processes that should be going on in an investor’s mind.
Stocks eventually go up or go down because of what they are worth and not because of the news. If they are fundamentally sound and increase their earnings over time, it is a high likelihood that the share price will eventually go up. In the short term however, it is simply about the collective decisions of all the market participants who have their own motivations. For example, market makers or traders may be looking to offload their shares by taking profits and buying in at a lower price subsequently. But as retail investors you would be reading about some problems that the company is facing which resulted in the drop of the share price.
So don’t be too caught up with the latest news headlines which can cloud your decision making process. Take what the news and financial media says with a pinch of salt and focus simply on the fundamentals. Here is what we did in the Russian-Ukraine war and China tech selloff.
Chief trainer of The Moneyball Investors Playbook program and founder of The Joyful Investors, a financial education firm that seeks to help avid investors learn to invest better and make the journey a joyful one. I graduated with a first class honors in Bachelor of Accountancy from Nanyang Technological University (NTU) and started my auditing career in one of the Big Four. I believe that once we know how to build our wealth sustainably, we can then live our best lives ever.
This document is for information only and does not constitute an offer or solicitation nor be construed as a recommendation to buy or sell any of the investments mentioned. Neither The Joyful Investors Pte. Ltd. (“The Joyful Investors”) nor any of its officers or employees accepts any liability whatsoever for any loss arising from any use of this publication or its contents. The views expressed are solely the opinions of the author as of the date of this document and are subject to change based on market and other conditions.
The information provided regarding any individual securities is not intended to be used to form any basis upon which an investment decision is to be made. The information contained in this document, including any data, projections and underlying assumptions are based upon certain assumptions and analysis of information available as at the date of this document and reflects prevailing conditions, all of which are accordingly subject to change at any time without notice and The Joyful Investors is under no obligation to notify you of any of these changes.
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