When I first entered the job market as an editor on a stock market website, I was totally caught up in the day’s news. During my first month, a trader with over two decades of experience pulled me aside one day and told me something at first I didn’t believe, but that I have come to fully embrace.
Don’t read the news. The ONLY thing that matters is price.
Of course I laughed at him, and kept on gorging myself on the daily flow of articles. It’s fun, and possibly addicting, to become immersed in the Breaking News updates that pop up like crazy all day, everyday. We would have a position in the firm’s trading account, news would break, and I would rush over to his desk to see what he thought. He would roll his eyes, fake a dramatic yawn, and make it otherwise obvious that he didn’t care. It also didn’t help that a huge screen projected CNBC all day long, literally right over my desk.
Over time, I slowly realized the wisdom of ignoring the headlines. I slowly began to see the daily disconnect between what the headlines said the market should be doing, and what the market really did. I’m not talking about blindly accepting a contrarian trading strategy either; if you can pull yourself away from the headlines for long enough, you will surely realize that the people behind the writing are specifically targeting your emotions to drive pageviews and clicks for more advertising dollars. It’s important to think about the motivation that drives someone writing for a publication that gets paid based on how many people read an article.
On the other hand, it would be completely irresponsible to ignore current events and commentary. There just needs to be a balance; you, as an advisor to your clients, should try your best to remain “above the fray,” and not get sucked into the emotional, daily news cycles. You should also be aware of what’s going on in the market, and that means reading the news and keeping up with current events. It’s a delicate balance.
One solution to the daily emotional news problem is to find a systematic investment process, and stick to it. Mike wrote a post earlier this week detailing some key attributes of someone with a high “Investment IQ.” What I took away from Mike’s article is along the same lines of the “No News” rule, which would be to be informed, stay patient, and execute your tested process.
The trader from the beginning of the story had a systematic technical process based on a few indicators and basic chart patterns. The news meant absolutely nothing to him because he had a process, he knew his rules, and he followed his rules. The No News Trader might be an extreme example of where you can take that mentality, but I think there’s something to be learned there.
