Morgan Housel gives a good description of the challenges investors have with dealing with the tsunami of financial information available to them today:
Bad investing behavior is the greatest cause of investor misery….
People get excited and buy high, then panic and sell low. They fall for bubbles. They trade. They rotate. They fidget. They worry. They get a new idea, and go all in. Then change their mind, sell it all, and go to something else.
It’s devastating. If you can find a way to be less emotional and feel less need for constant action in investing, you’ve figured this game out.
But how do you do that?
Just like the four year old who found a path to the second marshmallow. You distract yourself with something else.
If watching financial news constantly tempts you to tweak your portfolio, turn it off.
If reading market forecasts has caused you to make regrettable decisions, stop reading them.
Go do something else.
Maybe read more books and fewer articles.
Be more choosy about who you’re willing to listen to.
The amount of financial information available has exploded over the last decade, but the amount of financial information that you need to be informed has not.
You have to learn how to sift through the news, and filter out what you don’t need. “A wealth of information creates a poverty of attention,” Herbert Simon said. It also creates a dangerous tendency to lose self-control over your ability to be a patient long-term investor.
Just look the other way.
“If you can find a way to be less emotional and feel less need for constant action in investing, you’ve figured this game out.” I agree. In fact, this is the very reason I believe a relative strength-based investment strategy has such appeal. It filters out the noise and only focuses on the essential longer-term shifts in strength. Given the vast amounts of financial information available to investors today, an investor can easily find data to support any position that they may be inclined to take. If you want to be bearish (or bullish), you’ll find an endless supply of opinions to support that position. That is the dangerous reality for investors. There will always be a way to support any given view on a stock or market. Relative strength, on the other hand, is completely objective and gives investors the necessary tools to successfully navigate the financial markets without attempting the impossible task of reading and making sense of every piece of financial news they can get their hands on.
The relative strength strategy is NOT a guarantee. There may be times where all investments and strategies are unfavorable and depreciate in value.
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