Are you one of those people who pore over the Wall Street Journal every morning? Do you find yourself tuning into CNBC to check the market throughout the day?
Unless you're in the investment business, you don't need to know how the market is doing every business day. It's better to take a long-term view of all of your investments -- or enlist the services of a respected registered investment advisor to manage your money.
Too many investors have gotten hooked on daily investment talk shows. It's information overkill. You don't need to clutter your brain with the hourly movements in the commodities markets, the precious metals markets, or the stock and bond markets. You don't need to be concerned with the daily analysis of these economic and market experts.
Every financial talk show seems to present the same maddening scenario. Only the specifics change. One guest says energy stocks are the way to go and another says food stocks. One says buy precious metals, and another says it's time to dump your gold. In the end, what have you learned? Only that the opinions of the experts always differ, and there is no obvious answer.
Even as an investment advisor, I once fell into the same pattern. As with many financial pros that are about my age, years ago Friday nights found me in front of the television watching the great Louis Rukeyser's Wall Street Week. The program always began with Lou talking to three renowned stock market pros. And Lou would usually ask them for a short-term stock market forecast.
But after a few years, a pattern was developing. One guest would say the market was going up, another said the market was going down, and the third somehow managed to disagree with the first two!
In other words, it became apparent that the talking heads we see on financial programs are chosen for their ability to talk. They need to look and sound good. Rarely do any of the shows call out the bad calls.
Daily Quotes
Perhaps you are one of those investors who buy a new stock or mutual fund and then spend the next few days tracking its performance to see how your pick is panning out. It's a natural tendency. But do you need to keep following it every day, week, or even every month?
You don't check the value of your home or car every day. Why should you bother checking your investment values every day? Take the same attitude with your stock and bond investments.
Of course, it's true that every one of your investments has a new price every business day. In fact, your stock investments can change prices by the minute -- and your mutual funds change every day. But those are not your prices. Those are someone else's, someone who is selling today. Your prices are months or years down the road.
In fact, you should stay away from stocks or stock mutual funds entirely if you foresee needing that particular chunk of money within the coming three or four years. If your time horizon is shorter than three or four years you need to keep that money in relatively stable investments such as short-term bonds, bank CDs, or money market funds.
The problem is that following your portfolio too closely can motivate you to make bad decisions if you get caught up in the moment. And since there are always plenty of bad news stories to shake your confidence, you are more likely to sell out of fear rather than sticking to your long-term plans.
So assume you've made a good decision when you bought the investment, and then sit back and give it a chance to grow. Look at the market through a telescope, not a microscope.
The late Benjamin Graham, known as the "Father of Securities Analysis," laid it out bluntly in his book, The Intelligent Investor:
The investor with a portfolio of sound stocks should expect their prices to fluctuate and should neither be concerned by sizable declines nor become excited by sizable advances. He should always remember that market quotations are there for his convenience, either to be taken advantage of or to be ignored.
I DON'T KNOW, YOU DON'T KNOW, THEY DON'T KNOW: FINANCIAL MARKETS AND THE MEDIA
The financial media never stops making all of us feel like we absolutely must know stuff -- the right now stuff.
But how much credence should you put in the commentary of the experts on Wall Street and the financial media? Almost none. I have been watching financial markets for decades and have yet to find a single one with a perfectly functioning crystal ball. In other words, they don't know with any certainty what the future holds. Never have, never will.
But individually, each "expert" will spout fiercely held arguments for why the market will go up, down, or sideways. And if you didn't know better, you might even think they actually do know the future.
They don't. They can offer perfectly plausible reasons for why the market went up or down in the past -- 20/20 hindsight is rampant on Wall Street. But they can't tell you with any certainty what the market is going to do next. Not this year, not next year, not ever, and since the media (almost) never calls them on their misses, they continue to prognosticate.
The financial shows, like most television, are entertainment. If you enjoy that form of entertainment, feel free to keep watching, but don't expect to glean any gems of insight that will help your long-term performance. What advice would you follow anyway? Every guest touts a different stock, a different sector, a different strategy, or a different outlook on the market. You'd be investing in circles if you really tried to follow the experts.
But it's not difficult to understand why so many investors think they need to be concerned about the daily bumps and grinds of the markets. It's because the media beats it into them.
Down to the Decimal Points
Recently I was driving home on a Sunday afternoon with my radio tuned to a New York City all-news station. The hourly five-minute business report was on, and it wrapped up with the "news" that the Dow Jones Industrial Average closed up 4.23 points on Friday, and the Standard & Poor's 500 Index gained 1.55 points.
Who was this "news" aimed at? And what purpose did it serve?
At the time of the radio report, the stock market had been closed for almost two full days. Anyone who cared about whether the Dow gained or lost a few points surely knew it by then. More importantly, giving that two-day-old news could easily intimidate new investors. They would think that those numbers are significant -- after all, they were still being announced days after the fact, and they were given to two decimal places.
The neophyte investor might think, "Why else would that smart 'business' reporter mention those results on the news if they weren't significant? I guess I don't understand finance." But the fact is, those numbers are not important. For everyone except over-caffeinated professional day-trader type investors, the daily close of the Dow is a snapshot of a fleeting moment, not worthy of concern for any rational long-term investor.
Worse, the numbers are given as, well, numbers. What in the world does "up 4.23" points mean to your portfolio? Did the Dow do better because it was up more "points" than the S&P? The only numbers that should be announced on the news programs are percent changes. Anything else is nonsensical because it is presented without context.
In this case, the Dow gained 0.04 percent while the S&P gained 0.2 percent. In both cases, the net result would be that most broadly diversified portfolios barely budged from the previous day.
The practice of announcing point gains is a remnant from the days before calculators. Today there is no reason for broadcasting the raw numbers (which have almost no relationship to your nest egg), instead of the far more useful percentage gain or loss.