Investors Should Be Cautious of the Media NoiseSubmitted by on April 13th, 2016
However, there is a much stronger argument that, for investors especially, information overload not only makes it more difficult to make rational decisions, but often leads to behavior that can be harmful, if not devastating to your financial health. While there has obviously been a marked increase in the quantity of information, the quality of the information will always be in question. Where you have quantity without quality, all you really have is “noise.” And for people who really should be listening for legitimate financial advice and relevant information, it can be deafening.
With most of the population wired to the internet and mobile devices, information has become so ubiquitous that it is more of an entitlement for people who take its availability for granted. The media is taking full advantage of the attitude of entitlement, to layer on as much content as it thinks the public can consume. In order to attract the attention of a pre-occupied public, and therefore the advertising dollars its viewership generates, the information has to be entertaining, pithy, and compelling. To that end, the media has no fear or shame in hyping a story beyond a reasoned reality, in order to make its information more essential.
In the investment arena, stories can’t be compelling, or entertaining, for that matter, unless they are consequential in the short-term. In other words, the Facebook IPO, even though it was of little actual consequence to most investors, is a much more compelling story than an essay on the superior, long-term performance of index investing, even though it could benefit the vast majority of investors. The problem is that the information we, as investors, receive is filtered through an “excitability” gauge. Can you imagine an analyst or stock guru spending 20 minutes on CBC talking about the 5-year growth prospects of the stock market and how a diversified portfolio is your best opportunity to outperform the market? Three-quarters of the audience would switch over to the Food Network where they could find much more “consequential” information.
Unfortunately, access to more information and technology has not improved investor performance over the last couple of decades. While we’re not suggesting that you should turn off your news or refrain from surfing investment sites, you do need to remind yourself that these sources of information don’t necessarily share your agenda. Gathering information and educating yourself are essential parts of the process, but it should be done in the context of your clearly-defined objectives and a well-conceived financial plan.
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