(The Motley Fool)
The sheer volume of financial and business news published these days can be overwhelming for even the most seasoned investor. There is a reason why some of the largest asset managers in the world use supercomputers to process it all.
So how should an every day investor approach it? It’s all about understanding sources, seeing through the narrative, and finding outlets you can trust. As a financial writer and voracious consumer of stock market news, here are a few things I’d recommend taking to heart:
1. Know What You’re Reading
First, it’s important to understand there are different types of content out there, ranging from virtually useless to truly insightful:
First, Pure Clickbait: Like it or not, much of the internet revolves around getting readers to click a link. Fear sells, and headlines are written to be provocative.
The following headline helps illustrate the point: “Elon Musk wants Tesla to focus on profits or warns that TSLA will fall like ‘soufflé under a sledgehammer.'” A powerful analogy, and surely one that would strike fear into any Tesla bull. While the quote is interesting, the story wasn’t backed by any real, substantive analysis.
Reporting The Facts: Every day there are thousands of articles written simply to cover the happenings of every day corporate America. Earnings reports, mergers & acquisitions announcements, and general business updates.
While much of the information is important, and could very well influence the price of a given stock, these types of stories generally aren’t written with enough information to influence an investment decision.
Thoughtful Analysis: This is harder to come by. It takes a financial analyst who has both the background knowledge and required time to cover all sides of a story. But even the highest-quality, most well throughout pieces should not simply be trusted at face value.
2. Not Every Story Is Actionable
No matter what type of content you are reading, it’s critical to understand that very few articles, if any, should ever prompt you to make an investment decision. For those who are easily swayed by emotion, that can be a hard lesson to learn.
Take the following headline: “Coca-Cola beats Q2 earnings estimates and reports a positive outlook.” You might be tempted to hop on your brokerage account and pick up a few shares to capture the positive momentum. But there are a few realities to consider:
First, the overwhelming majority of news is almost instantaneously “priced into” a stock the second it hits the news wire. Remember those supercomputers? Hedge funds and other big investors can get information more quickly than the rest of the market, so there is very little advantage in trying to “time” a stock transaction based on news.
There’s even been talk of laying high-speed fiber optic cable beneath the Atlantic Ocean so certain hedge funds can obtain information milliseconds faster than the competition.
Second, most financial news does not include the information necessary to make an investment decision. Investors must consider business model, valuation, competitive landscape, and industry backdrop, none of which is typically considered in regular financial news.
3. Question The Narrative
Financial journalists, just like everyone else, have competing priorities, bosses, deadlines, and lives outside work. As a result, sometimes stories are written in a way that can be misleading or confusing.
At the end of the day, the most important “voice” you should listen to is your own.
Warren Buffet once said he could: “Improve your ultimate financial welfare by giving you a ticket with only 20 slots in it so that you had 20 punches — representing all the investments that you got to make in a lifetime.”
Some journalists write 20 stories in a single week! Hardly the level of care required to form a solid investing thesis. If a particular story concerns a holding in your portfolio, ask yourself:
Does the article present any new information?
Does the content change my thesis about the investment?
What questions should I be asking myself as a result of the news?
4. Find Your Trusted Sources
A subscription to the Wall Street Journal, Financial Times, or Bloomberg will give you the information you need to stay on top markets and the economic backdrop that colors the investment world.
Ultimately, no matter your sources, only you can make the best decision for your portfolio. Read the bull case, read the bear case, and rely on your own synthesis of all this information to determine your best investing thesis.