Categories
All posts

The Utility of Watching Market News

Is it worthwhile to watch market news? I’m referring to CNN Money or CNBC or your own flavor of market news. Watching market news makes sense if the news actually impacts the value of the stock, change investor behavior, or at least provide entertainment.

I don’t consume any market news. But if it could earn me more money, I’m greedy enough that I probably would. So I asked my friends about investing and their stock pickings. Unanimously, my stock trading friends are watching market news regularly.

 

Utility of Watching Market News

Whether you’re watching it or reading it or listening to it, market news is ubiquitous. To escape a ticker symbol, you often have to take steps on your phone, laptop, or tablet.

The market news industry is massive. Information is presented in a manner to evoke a response. That response is often to start trading or consuming even more market news.

Stock Trading

The goal, of course, is making more money from investments. Stock picking is the most common way a trader will put market news to use.

A CEO gets fired and the stock drops. My buddy goes and buys some of that stock and pays a fee to do so. The stock then either recovers after the dust settles or it remains low or worse, drops.

A new product is announced. Let’s say Toyota will start making flying cars. So you go and purchase $50,000 worth of Toyota stock. Then you wait to sell when the stock goes up.

Market News

Let’s talk about market news because it has a life cycle that’s worth considering.

Let’s say Apple fires their CEO because he’s been doing the nasty with Google CEO’s wife. Before this information hits the mainstream media, there has to be some foreplay.

First, someone gets wind of this – probably from a scorned ex-lover. Then the report has to be verified. Maybe the CEO is put on leave. Already some people have their suspicions and start spreading rumors. Some will start trading off of this information.

Then Apple goes through the proper channels to prepare for any fallout before releasing the information to their go-to news source. By the way, every company has a trusted reporter so as to filter the news exactly the way they want.

Old News

This information touches a lot of eyes before it ever goes to print. Many individuals will dump their Apple stocks by insider trading which is as illegal as drunk driving and similarly ubiquitous. They might then buy a chunk back right after the news and sell immediately after recovery – not always in their own name.

This timeframe has probably been days, if not weeks. By the time it slaps you across the face, you’re playing catchup even if you think you are ahead of the curve. It’s not news. It’s an old fact. All the major players knew about this before the market news ever had a chance to report on it.

 

Trading Based on Market News

How many CEO’s get fired?
How many new innovative products are announced?
How many scandals take place?

In fact, not a lot. Definitely not enough for you to trade off of regularly.

But, let’s say that once a day there is a new CEO getting fired, a new technologic innovation being unveiled, and an acquisition or merger taking place.

Trading Bots

Are you going to be available every second of every day to respond to this news? There are computer bots which filter the internet for news and people who are cold-calling leads to see if something is happening.

Some trading software is programmed to trade right before market opening, right before closing, right after a holiday, and right after a particular market announcement. That’s it, it’s done. That was the opportunity.

These are massive trades in microseconds. Done thousands of times throughout the day which adds up. Your $5,125 purchase of Apple hardly stands a chance.

In short-term investing, anything outside of those microseconds is fluff. It’s money lost to trading fees.

 

Do Market Facts Matter?

So then, do market facts even matter? Of course they do. But a CEO getting fired, a business getting acquired, or a merger taking place will hardly change the value of the stock.

There are hundreds of factors affecting the price of a stock. In that long list are included luck, errors, hacking, and insider trading. The value, on the other hand, is a much more complicated attribute to surmise.

There are massive businesses built off of trading based on news. Again, these are businesses with the kind of hardware and software that you and I don’t have access to. Every time you are trading, you are trading against these guys. These guys are dumping the stock off of which they already made their money and you’re the one buying it. And when you’re selling what you think is an overvalued stock, they are snagging it up and immediately flipping it to another person willing to bid higher.

If you’re making millions consistently – and I don’t mean only in a bull market like we have now – then you are doing just fine, don’t stop. If not, then you are (no offense) the sucker who is buying the already depreciated stock and selling it for a loss while still paying a commission.

 

But What About Stock X, Y, or Z?

If I bought Apple 20 years ago then I’d be a very rich man now. But how would I know to buy Apple 20 years ago when there were just as many promising companies back then? Some have even gone bankrupt.

“But Dr. Mo, if you bought Google back in the day then you’d be a mega-millionaire now!” And if I used a condom with that hooker then I probably wouldn’t have genital herpes now.

Just like I didn’t know his/her HSV status, I didn’t know that Google was going to beat Yahoo. Or Facebook MySpace. And who saw CVS coming?

 

Long-term Strategies

In my current investing strategy I don’t have to be watching market news. I don’t need to act on market news. I don’t need to adjust my asset allocation, nor take myself out of the market.

I fully accept that there will be market crashes; I welcome them. There will be more bull markets such as the one we are in now. I accept that dividend yields are going to go down or they might shoot back up.

Interest rates will rise and they will eventually stagnate.

None of these facts are part of my investing strategy. Not that I’m trying to push my investing strategy on you. Just saying that stock picking, stock trading, isn’t a winning game if you’re basing it on market news.

However, long-term strategies seem to be profitable. I’ll discuss that in the next section under Buy & Hold.

Advantage over Trading Firms

What the layperson has over these trading companies which trade in microseconds is that the individual investor can hold on to a particular stock for several decades.

The trading firms would be out of business if they weren’t generating millions every year and flipping stocks. Investors and large companies look to these guys for short-term investing, not long-term investing. HFT is the name of the game.

You, on the other hand, can buy a little of this and a little of that and hold on to that fund for as long as you like. Should your gamble pay off then you’ll be rewarded handsomely.

 

Buy & Hold

This is a funny term “buy & hold”. You will never buy and hold because eventually you or you heirs will sell. That sale has to be timed. Same as the buy.

The point of buy & hold is that it gets rid of the blips and bumps and dumps due to too many consumers watching market news. The viable companies – those with actual value – will continue to retain investor faith.

The reason Apple skyrocketed is because people are still buying the stock regardless of the higher price. They are voting with their dollars, saying that the company and products and business practices are still a good deal even at this higher price.

As long as the investors keep having faith in a particular business, they will keep investing, regardless of the price. There are individual stocks worth thousands of dollars – investors are lining up to buy more.

Individual Stock

What you cannot predict is the long-term success or failure of an individual company. And it’s quite unlikely for one particular business, even Google, to remain the most powerful in their sector forever.

What you can predict is that the overall stock market will be productive. Why? If the market wasn’t producing value then consumers would stop investing in the stock market. They’ll turn to bonds or CD’s or even hold cash.

 

The Gamble

I have a net worth of nearly $900k and I am making some money doing telemedicine, consulting, and teaching on the side. So I have some extra money to gamble with.

I could go buy an individual stock, say, $10k of it, and just hold on to it for another 25 years.

I could also take that $10k and buy lottery tickets. Or I could donate that $10k. Or I could invest that $10k in a broad stock market index fund.

If the gamble pays off with the lottery ticket then I’ll have millions. If it doesn’t, I’ll be fully out of the $10k.

If I invest the $10k in a particular stock, say Tesla or Amazon, then I it might grow to $25M in 25 years. Awesome. I don’t know what I would do with $25M at 65 but I’m sure I can get creative. Alternatively, the company I choose might go bankrupt or stagnate.

Finally, I can invest in some broad index fund. Maybe even a small-cap index fund. That $10k would very likely grow to $35k if I didn’t add another penny to it. Not bad; not terribly exciting. But it’s something I can plan for, rely on.

 

Wasted Time

How about the wasted time spent watching market news? That early morning time you could have spent relaxing with a cup of coffee or going for a walk in your polluted city was instead spent glued to Yahoo Finance.

You’d have wasted some more time making the actual trade.

But the biggest wasted time is the time you spend thinking about your investments. Worrying, wondering, planning.

There were as many 21-year-old multimillionaire day traders in 2001 as there are now. They were selling the same courses on TV in 2001 as they are selling on YouTube in 2018Unfortunately, they are a waste of time.

These individuals went bankrupt, naturally, in 2002 and went on to hype up the prices of real estate and sold millionaire real estate courses. They sold shovels to the gold diggers and people bought them.

 

Misdirection

The last point I’ll make when it comes to watching market news is the misdirection it causes. A perfectly fine and sound business might have had a pervy CEO. Does that mean they won’t sell as many gadgets? Will they not bring in a CEO who is probably 10x better and less distracted by the dick pics he’s sending or receiving?

The worst misdirection is thinking that you are able to gain an upper hand on the market. Yes, there are those who are able to with massive time spent analyzing businesses in order to determine which business is a good investment and for how long.

Even these gurus will be wrong as many times as they are right. But they can make a living for themselves with many, many, many hours spent studying and learning their particular market trades.

The time you spent trying to earn 100% returns based on watching market news could have been spent doing more fruitful things with your personal finances. You could have learned a new trade, how to budget, how to save, opened a business, invested conservatively, or learned how to properly perform an asset allocation rebalance.

Questions to Ponder

Will watching market news make you smarter? I don’t think so. The information is geared towards entertainment, masked as financial knowledge. In fact, it’s dumbed down quite a bit.

Will market news help you invest better? No. The kind of information you need to invest better isn’t found in news media.

Does the reported news affect the economy or your personal finances? You shouldn’t be getting your main financial information from the news because it’s biased. The most recent unemployment numbers and “bubble watch” facts won’t help you decide what is a good or a bad investment. It’s the economy that creates the news, not the other way around.

What’s the entertainment value of watching market news? I think it’s quite high. The colorful charts, flashing numbers, attractive people, mesmerizing predictions – all help to capture your attention and zone out.

What about CNN Money, Financial Times, Yahoo Finance, Marketwatch, Motley Fool, anything with Kramer, or the Wall Street Journal? Wealthy individuals tune into such news not because it will affect their decision making but in order to have a conversation piece.

But news media x predicted the bubble. And news media y predicted that Apple will be blockbuster. Everyone is predicting a bubble right now. The problem is that they are missing the key bits of information in order to turn a profit;  when exactly will the bubble occur and when will it be time to get back into the market? For every blockbuster predictions there are a ton of busts.

× How can I help you?