When I drive, I tend to either listen to podcasts or books on tape. It comes from my obsession with learning new things and trying to maximize my time. What better way to pass a long or short drive than learning something that can help my clients or live a better life? The other day, however, I made the mistake putting on a financial news station. A portfolio manager was discussing the risks in the market currently – citing specifically geopolitical risk as the biggest threat looming. I sat there, listened and I found myself getting more and more annoyed about the interview. There is ALWAYS geopolitical risk! Right now, North Korea and Russia are at the forefront but there are powder kegs across the world that could blow up! Pick a year and there was some sort of potential war outbreak. For example, if you didn’t invest because of potential (or real war) in the Middle East than you have missed out on serious returns over time. Individuals should invest based upon their goals and a financial plan. They should NOT base their investment decisions on what might or could happen. Or what’s on TV.
Financial TV is about advertising dollars. End of story. The majority of pundits, commentators, and hosts hype the biggest IPO, the biggest election, the biggest scandal and create narratives not to give us great ideas but to keep us watching. The more sensationalized an event becomes, the more likely we are to watch. Financial TV stokes the emotions of euphoria and fear. The more we watch, the more likely we are to make a mistake with our own money. Bad financial decisions tend to be emotional in nature.
So how do we control our emotions when we are bombarded with storylines that elicit said emotions?
- Develop an investment process – This means having an investment strategy that matches your goals and how you like to invest. If you believe in asset allocation, asset allocate. If you are technician, follow the charts. If you are a value investor, do your best Warren Buffett and pick under valued investments. If you don’t want to do the work, then find an advisor who matches your philosophy. Your process cannot be based upon a single event or theory (Israel and Iran are destined for war, the Fed is going to cause hyperinflation). If it is then it’s not really a process but investments based upon a bias.
- Stick to the process – This is the hardest part of investing, especially when you are bombarded with information that seems contrary to what you are doing as an investor. All investment styles have periods of outperformance and underperformance. That comes with the territory. But the really big mistakes can occur when you leave your process behind due to an emotional decision. In Jack Schwager’s book “The Market Wizards”, he interviews some of the greatest investors of their generation. To a person, each one of them said their biggest investment mistakes were made when they violated their discipline of investing. Some lost 100% of their money and had to start again from scratch. That’s a touch lesson to learn!
- Turn off the TV – None of the investment styles above require a television to implement. They don’t need a pundit telling you that the world is coming to an end (or the sky’s the limit). All they take is some research and an internet connection. None of them are event driven strategies.
Bottom line is that if you enjoy watching the financial news as entertainment, keep on watching just like you would watch Game of Thrones. But you wouldn’t take your investment advice from Cersei Lannister….would you?