I am sure most of you have made New Year resolutions and are on your way towards achieving them. I would suggest that you add one more resolution – ‘Keep away from too much news’. Read on to find out why I want you to stay away from 24-hour news updates –
Image courtesy of David Castillo Dominici at FreeDigitalPhotos.net
In today’s wired world, we are connected all the time and therefore, get too much information. We have 24 hour coverage of all events across the world. It is also true that bad news travels faster. We get constant updates on news across the world and the financial media reports analyses and presents effects of the news on the stock markets, investments and economy.
Here are some news items collated from news websites last year –
- Speaker writes to MPs: Maintain discipline, decorum of House
- 50 most dangerous air crashes in the last 50 years
- Jayalalithaa chairs first cabinet meet since becoming CM again
- Climate Change Could Force 100 Million into Poverty
- At least 16 people have been wounded in a gunfight at a park in New Orleans, USA
We keep getting such news tidbits throughout the day and our mind is overfilled with information that may not be really useful. This constant flow of news prevents us from taking a step back and thinking clearly.
Now check out these views or predictions that have been done by the experts which were in the news –
In 2011, it was predicted that China would find it difficult to control inflation over the next few years.
But the reality today is that the Chinese are worried about deflation.
In August 2008, there was a ‘buy’ rating on Lehman brothers by an expert analyst.
But in September 2008, Lehman Brothers fell and faced one of the biggest bankruptcies.
The news channels, websites etc. constantly feed us information and news. It is their business to do that. They keep feeding us information as silence on their part will affect their visibility, sponsorships, revenues and profits. But we should take a step back and decide if we really need to be so updated all the time. Is all this news adding value to our lives? Do they help us taking better decisions?
Usually we tend to pay more attention to bad news and such bad news is propagated even more as for news channels, more sound bytes means more business and for websites, more eyeballs means higher valuation. Each media outlet tries to outdo the other and keeps throwing nuggets of information, views, analysis and reports at us without really understanding if we need the information or not.
Check Video – Media: Stop fooling investors
As you saw earlier, news and views are not accurate all the time. From a financial perspective as individual investors, we tend to hoard all the information and react on it. Many times, if we hear bad news or read negative reports, we do not plan much and end up taking rash decisions which may not always be financially prudent. We should remember the following so that we do not read too much into the news and reports and be careful while dealing with our finances –
1) Reaction to Past News or news that has already been factored in –
News and analysis on events like falling crude oil prices, election results or falling and rising interest rates generate reactions from investors. They buy/sell assets without much planning. But the market generally has generally factored in the news. One should take a long-term view before taking any financial decisions.
2) Short-term Volatility should not affect long term investments –
Sometimes there are wild swings in the market due to some news. There will always be some volatility. If one has invested in certain assets as per his/her financial plan, he/she should stick to the plan. If changes are to be made, they should be made considering all factors and options. The financial plan and asset allocation must be kept in mind. The actions should be well thought through. In the long term these volatile movements will not mean much if one has developed a good financial plan.
3) Unprecedented Reaction to Usual Events –
Usual Business Events are analysed too much or people try to read into them too much. Dividend declared, earnings releases, stock splits, drop in sales or earnings are taken too seriously. If there is a slight drop in dividend or earnings, people panic and sell the stock or funds. This is not a smart move. One should research properly before making buy/sell decisions.
Irrespective of whether the news is good or bad, one should remember that –
- Media organisations want you to feel you are on top of the things when you know every news piece. But it is better to know what news to consume and what not. This will help us to think clearly and concentrate more.
- Many people who consume news all the time skim through information are incapable to read lengthy articles or books. They get tired and are not able to process all this information properly.
- Many times, we are overloaded with bad news, news of violence, corruption issues etc. and this makes us passive and numb to everything.
From a financial perspective, you should take care that –
- You should have a diversified investment portfolio so that risks are managed well.
- It is important to not over analyse news and views. It is good to be aware of events around the world but one should take a rational view of one’s investment portfolio. If you are tempted to make a change to your investments on the basis of every news item you read or hear, it is probably better to follow the news a little less.
- You should try to read news that give opposite views. You will get different perspectives and be able to make a better judgement.
- There will be news on stocks, economy etc. with recommendations to buy and sell assets – its just entertainment if you analyse after few years. So it is important to sift the valuable news from the other news so that you invest in the right manner and do not just end up trading.
On the financial side, people make rash decisions when they hear bad news on the financial front. They should always remember that markets will move up or down on future events which cannot be predicted accurately. Therefore, they should not speculate but concentrate on investing and making their wealth grow.
Is it important to be aware of every news and events around you??