In investing and life, information overload, aka “noisy news,” has long been a thing. In fact, before the Internet came along, I used to publish a hardcopy newsletter called “Rising Above the Noise.” Because even then, investors seemed awash in TMI (too much information).
If media noise was a problem back then, imagine the implications today. Which brings me to today’s Play It Again, Steve – Timeless Financial Tip #2.
To be a successful investor, it’s as important as ever to dial down all the noisy news you invite into your head.
News Versus Noise
These days, we’re all familiar with the term “clickbait.” Long before that term came along, the popular press already knew they could profit similarly by embracing an, “if it bleeds, it leads” approach to delivering the news. The more eyeballs or clicks scored, the higher the potential advertising revenue.
Driven by profit motivations, popular newsfeeds have long been incented to showcase that which will elevate your excitement. They care more about whether you look, than what you’re seeing. This means our duty as informed consumers remains the same:
Consider the true incentives for any given news source.
Are they aligned with yours? If not, it’s best treated as noise rather than news.
Noise Versus Knowledge
We’re not advocating that you stop learning. Rather, a successful, long-term investor’s goal is to tune out the pointless distractions, so we can tune into more thoughtful action. What’s the difference?
The noise we’re exposed to from never-ending newsfeeds is…
- Demanding: New news arrives at a breakneck pace and insane volume that never lets up. Don’t you dare blink.
- Distracting: The constant stream delivers endless lures to STOP whatever you’re doing and tune right in, lest you miss right out. (There’s a reason the popular media’s favorite crawler is: “BREAKING NEWS.”)
- Fleeting: News is inherently new. By the time you hear it, something else has probably already happened to change it. Over and over again, forever.
- Inaccurate: Given the speed of the spin, rumors and half-baked hunches are more frequent than facts. All the conjecture feeds on our fears and preys on our emotions.
- Incoherent: Even when information is correct, it comes in so fast and furious, we can’t possibly make sense of it all in real time.
Where noise is loud, wisdom is quiet…
Acquiring knowledge calls for the opposite of all this commotion. Knowledge takes reflection. It takes selectivity. Perhaps most of all, it takes time:
- Time to translate the reams of random information into meaningful insights.
- Time to separate fact from fiction.
- Time to distinguish reputable sources from biased blather.
What’s the Problem with Noisy News?
“Our obsession with being informed makes it hard to think long-term. We spend hours consuming news because we want to be informed. The problem is, the news doesn’t make us informed – quite the opposite. The more news we consume, the more misinformed we become.”
Put another way, the more noise you encounter, the harder it becomes to make good investment decisions. Good investment decisions are the kinds guided by your own goals rather than market noise. They’re the kind you can more readily trust, because they’re grounded in solid evidence and feel built to last. They help you stay focused and on track.
In his post, “How to Think Better,” Parrish notes: “Good decisions make the future easier, bad ones make it harder.” This seems simple enough. But research has shown, good decision-making is a multi-step process. You gather available information. You identify plausible options. You evaluate which ones make the most sense for you. You avoid letting hot emotions cloud your view.
As an investor, how can you do all that, when the “available information” is coming at you at such an insane volume? It doesn’t take long before news devolves into noise, overwhelming the time and space you need to make those good investment decisions.
Watch Out for Second-Hand News
Much of the breaking news investors encounter spews out in real time across an ever-expanding accumulation of financial media outlets. And heaven help anyone who spends much time on social media, where the volume is always at a fever pitch.
But maybe you don’t personally pay much attention to these platforms, at least not as a source for sound investment insights. If so, I applaud your decision.
Beware anyway. Even if you feel immune from the pressures coming directly from the financial press, you’re probably still being influenced more than you know. Friends, family, coworkers, an Uber driver, advertisements, and so on still pour whatever they’ve just heard into your open ear. This second-hand noise can still tempt you to second-guess your sensible investment decisions.
You and Your Brain
As a long-term investor, are you still convinced you’ve got what it takes to tune out the short-term noise, no matter its source? While this sounds simple, in practice it’s hard. Most of us can’t do it.
Take it from Nobel laureate Daniel Kahneman, who co-authored a book aptly entitled, “Noise.” Defining noise as “variability in judgments that should be identical,” the book describes a bounty of research demonstrating that even professionals—from physicians, to financial officers, to court judges—often deviate from what should be consistent decision-making based on countless variables. These variables include internal factors such as whether they’re tired or alert, hungry or full, or in a good or bad mood. They also can include whatever “crowd-think” they’ve been exposed to most recently.
One of the book’s conclusions was as follows:
“If our mind is a measuring instrument, it will never be a perfect one.”
In other words, if we humans were high-end computers, maybe we could calmly process each bit of breaking news from every source, place it in proper context, and consistently stick with our sensible strategies. Instead, our brains are more like bundles of nerves, reacting to each incoming signal, often beyond our own control.
Tuning Out the Noise to Achieve Your Long-Term Financial Goals
This is why, to invest for the long run, we must look past that which won’t last, and focus on that which endures. We probably can’t eliminate the noise entirely. But focusing on our long-term goals and tuning out the daily news still offers our best odds for rising above it.
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