The news is omnipresent: in our hands, in the web browser, in the background at a public space. But it’s just noise. This week’s Periscope addresses an example of news and futility.
Same News—Different Conclusion
I knew it was going to happen. The headlines would give us bad news about financial institutions. Here is a screen capture from my iPhone. On this day, the headlines were all bad—as usual. And none of it is helpful for an investor. For people with real-life long-term financial plans, like you and me, it might be disastrous to pay attention.
Same news—different headlines. How can I make sense of that?
The first highlighted headline is “Pandemic hammers big banks.”
So I begin to worry and look at my account—because I haven’t learned my lesson—and I see they’ve actually increased that day. What gives?
The second headline, on the same iPhone screen capture, from the same exact day, says “Dow Rises 100 points as JP Morgan climbs on earnings.” Now I feel relief, and I feel smarter. But, in reality, nothing changed other than my perception.
You know what actually happens here? We are hard-wired to react to the negative headline first. We create narratives to make sense of disparate information. Whatever the headline is, we make our story fit the headline.
History hasn’t actually happened until we’ve made up a story to explain it.
I’m not saying don’t pay attention. I’m saying it’s futile to make real-life, long-term investment decisions based off whatever news you may receive. At best, it’s too late.
It’s Not Just Political News
It’s important in today’s America that I point out the two headlines are not from clearly partisan websites.
These two headlines are taken from CNBC and NPR News. If anything, they are tilted towards the same political persuasion. So it’s not a Republican vs. Democrat thing at all. It’s the nature of news itself.
We are essentially making a big mistake, as summarized by this diagram. We cannot make decisions based on days, months, or even years when our long-term success will be determined over decades.
But I don’t have that long a period of time? I’m close to retirement! I sympathize with you, and we need to talk about that. Because there is no short-term news that is actionable. Not even in the Covid-19 era.
We have a choice to make. We either pay attention to what matters, over a timeframe that is meaningful to us, or we don’t. But we don’t want to act on the short-term if it decreases our chance of long-term success.
So what’s your choice?