Over the weekend, someone asked me what I thought about the market rally last week. To be honest, I didn’t know there was a rally. I knew the weekly auto draft to my investment accounts occurred and that those funds would be invested accordingly to my long term goals. But I never track the effects of oil prices, fed announcements, or any other “breaking” news.
Carl Richards talks about this concept in his book The Behavior Gap: “If investment success is truly about behaving correctly over the long term and choosing investments within the context of your plan, what happens in the market day to day should have no impact on your decision-making.” In other words, who cares?
CNBC is background noise. It alternatingly sells greed and fear because they are exciting. But investing isn’t about excitement; it’s about building wealth. Richards further comments, “Saving money, avoiding speculative investments, and repeating that process over and over may not be sexy, but it gets the job done.” So don’t get distracted from the process by market news.
People like to think they control their own destiny, so absorbing financial news feels empowering. And conventional wisdom provides that a more informed decision is a better decision. But the key difference with market information is twofold: financial news is mostly dated or irrelevant.
How can “breaking” news be dated? If you are learning about it from your laptop while sipping green tea in your kitchen, there is definitely a Wall Street analyst that was hopped up on Adderall making a PowerPoint presentation at 3 a.m. about that very thing two days ago.
But mostly the news is just irrelevant—not because it won’t affect the market but because its effects are impossible to predict. The market will do what the market wants to do, even if it doesn’t make much sense. No one is trying to figure out what the effects should be; they are trying to figure out what everyone else thinks they should be. So it’s essentially a game of predicting emotional reaction.
Market movements represent short term reactions to daily events. Your financial goals should be long term, so one has little to do with the other.
Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.