Sift through avalanche of investment information


The Wall Street Journal, The New York Times, the La Jolla Light, CNBC, Yahoo, MSNBC. The list of financial news outlets is long and seems to be growing. Whether we seek it out or not, we are daily bombarded with the latest news and statistics about the economy and the investment markets.

Absorbing all of this information is like drinking from a fire hose. It overwhelms even me, and I get paid to pay attention to all this stuff.

My phone rings at least once a day with a friend or client on the line asking about some piece of financial news. The latest Federal Reserve Board meeting; Microsoft’s earnings announcement; the price of oil. Investors figure that if there is something in the news surely it must be important. After all, the media outlets know what is important. Right?

Wrong. Media outlets report on things that are happening in the world. Immediacy reigns supreme. Even when reporters ask experts for commentary, short-term thinking is the rule of the day. When experts are brought onto a news program, they are invited to divine the meaning of that day’s market behavior. Therefore, whatever the market is doing, they try to tie that day’s news to the market movement.

The experts are asked, “What should our readers/viewers/listeners do with this piece of news?” Every single day, regardless of the news, I have a remarkably simple answer to that question: nothing.

Among my guiding principles of asset management is one called, “Ashburn’s Canon:”

In any single day’s news, there is never any information worthy of an investment decision.

Think about the daily flow of news and numbers as simply “data.” The data rushes at us in a torrent. If you have ever watched CNBC (if you haven’t - don’t), you know what I’m talking about. Stock quotes, trading ranges, economic news, world news . . . on and on, all day every day. Data just flies across the screen. When you pick up the paper, there is more data. By data, I don’t just mean numbers. I also mean news stories, opinion pieces and feature articles.

Data only becomes “Decision Information” when it informs us enough to make a decision. I believe that there is no new data in any given day’s news that rises to the level of Decision Information.

Take economic data. Let us assume that the government releases data showing that new unemployment claims rose unexpectedly last month. Recalling our Econ 201 class from umpteen years ago, we figure that unexpectedly rising unemployment claims means that the economy is faltering. Stocks will stumble and bonds will rally. Quick! What should we do?

We should do nothing. There are two reasons this piece of data is not Decision Information. First, by the time you can log on to your account or call your broker, thousands of professional traders have already done so, and whatever price movement you were hoping to profit from is gone. Anyway, trying to act quickly and “out-trade” other traders is not investing. At best, it is gambling; at worst, it is simply guessing.

Second - and this is the important one - last month’s unemployment claims figure has virtually no relationship to the returns on any of your investments over the next several years. This is true of just about any piece of economic or business data. These pieces of data cannot be taken in isolation.

Unemployment data is only meaningful in terms of trends that develop over time. It is meaningful only against a backdrop of the bigger picture. The bigger picture itself only develops over time.

A picture of the investment landscape is like instant Polaroid pictures. You snap the camera, and then the image slowly comes to life over a few minutes. By extension, I suggest that the investment landscape picture develops over the course of weeks and months and even years. All of the news and data available in a single day ends up having little to do with how the picture really turns out.

If you have a well-crafted, diversified investment strategy in place, you should almost never make major changes based on a day’s news. Human nature is such that you will tend to react in the exact opposite way that you should. You should allow your view of the investment landscape to develop in its own good time.