| Topic - Avoiding Investing Noise | Education Center |
Investment headlines sell newspapers and create investment "noise." The media is motivated by headlines, and this noise is the lifeblood of today's media -- whoever shouts the loudest, creates the biggest story. And the simple fact is that investment noise makes good headlines.
Noise investors believe that by regularly reading a financial publication, they become "insiders" to information that gives them some advantage. What noise investors don't realize is that chasing a hot stock, or attempting to time the swings in the market, are strategies that are costly to implement, have an extremely low probability of success, and are ineffective in adding value to your portfolio.
Information investors are the opposite of noise investors. Information investors understand how financial markets actually work, and they know how to use their financial market knowledge to consistently make money. Information investors focus on their overall investment strategy and portfolio, rather than viewing a specific investment in isolation. They have learned to figure out which information is useful, and which is next to worthless.
When you hear bad news about a company, you need to figure out its impact on your investment. Here are some questions you should ask about any information, good or bad, that you come across, related to a stock that you own:
Before you decide to act because an analyst has "downgraded" or "upgraded" a stock, consider the time frame the analyst used in making the recommendation. Many analysts are only interested in stocks that will increase in price in a relatively short period. If you have a long-term horizon, this action may be but a tiny blip in the stock's performance.
Remember, there are institutional traders and other professionals who have real-time newsfeeds and can act much more quickly than you ever could. Don't try to beat them at their game. Take your time, and make a careful analysis of the situation before you act.