The more information we can get our hands on, the better, right? Not necessarily and here’s why. Speaking personally, I have to admit that I’m a bit of a hypochondriac. A stomach ache might be cancer, a small pain in my chest could be a heart attack and a common cold could be the beginning of the end in my mind.
I used to spend far too much time on WebMD and other health sites researching my ailments and finally I had to set a personal rule that there would be no more frequenting of those sites. I still worry more than I should but I couldn’t argue with the doctors who said that reading every detail of what could happen is not a recipe for long term mental health.
Isn’t the investment market like that too? Numerous studies have shown a correlation between the amount of “active managing” you do in your account and the amount of money you lose. More toiling in your portfolio leads to less gains for most.
If we should leave our portfolios alone, what causes us to make frequent changes? It’s noise. The noise comes from sites like StockTwits, CNBC, Bloomburg, Yahoo! Finance, Business Insider, and the many other sites which, admittedly, I write for. Everybody has an opinion about where the market will go tomorrow but the truth is that nobody actually knows.
Tiffany
Here’s a great example of noise. For well over a year, we’ve heard that if it weren’t for luxury retail, there would be very little consumer activity. Tiffany and Coach have held up quite well in a space where so many others have struggled to survive. It didn’t seem to make sense but the media told us that these are the stocks you should own because there’s always a market for luxury goods because those people have the money to spend regardless of the economy. We heard this advice up until very recently.
Then, Tifffany, the company every investor should own, slashed their forward guidance because of weaker than expected holiday spending. They saw same store sales growth of 4% instead of the more than 7% than analysts were expecting. Because of this, Tiffany shares traded down more than 10% in just one day.
Now, the same news media that loved Tiffany just days before are now printing story after story of how Tiffany along with the jewelry industry, may be the decade’s next underperformer.
Seriously? Let’s analyze this. Tiffany, the second largest jewelry retailer in the world has a slower than expected holiday season and that’s a reason the stock should fall by double digit percentages? Because many of the rich are on Wall Street, the decline in Tiffany sales must signal that another Wall Street crisis is coming. That was actually printed in an article and because of that and all of the other noise, there are undoubtedly hoards of retail investors who sold their shares after the recent decline for a huge loss.
Is this global jewelry icon really on life support or is this a chance to pick up a high quality name at an amazing price?
My Advice
I don’t read the health pages anymore because I don’t have the industry knowledge and experience to analyze the information in a healthy way. If you want to read every story about the ECB, and stock metrics that you don’t understand, go for it but there’s a better than average chance that the information is nothing more than short term noise.
The information you want to pay attention to are the larger stories. If Tiffany spends the next year reporting disappointing earnings, that might be something to consider but don’t bail on a quality stock (at its lows) because of some article you read. If you want to trade the noise, do it with play money instead of funds set aside for retirement.
Don’t fall for the media noise. Long term investing is far easier than short term trading and it pays better too.
