Photo credit: Mohsan
Investment gurus have repeatedly remind investors not to make investment decisions based on news. I gathered examples of recent commentaries from a reputable news provider, trying to explain why the market move in a certain way. The controversies are in bold and my rebuttals are in brackets.
“The Dow Jones industrial average rose 305.45, or 3.28 percent:
Investors believing that Wall Street is on the verge of a yearend rally (you can predict the future?) piled into the market Tuesday, brushing off more weak economic data while they propelled the Dow Jones industrials to its highest close in four weeks. It was the biggest Election Day rally ever for the Dow, which rose 3.28 percent and topped the 1.2 percent gain seen in 1984 when Ronald Reagan defeated Walter Mondale. Prior to 1980, the market was closed on Election Day. Some analysts said the market rose on relief that the presidential election was about to be decided (you sure?). But others said investors were anticipating a year-end recovery from Wall Street’s huge sell-off (investors told you that?).”
“The Dow Jones industrial average fell 5.18, or 0.06 percent:
Wall Street ended the calmest session in recent memory with a narrowly mixed performance Monday as investors largely looked past a weak reading on the manufacturing sector and focused on Tuesday’s elections (you are a mind reader?). The Dow Jones industrials moved in a range of 155 points — well below October’s average daily swing of 594. Investors largely overlooked the Institute for Supply Management’s report (investors ought to review it even if you do?) that its measure of U.S. manufacturing dropped last month to the lowest level since September 1982.”
As you can see, the commentaries often make sweeping statements, trying to provide explanations for the market’s behavior. They conveniently look for any available reasons (reports, elections, events, etc) that they can use and adapt. There are so many investors in the market and each has his/her reason for the involvement. We cannot generalize and try to match an answer to the situation or market direction.
Nassim Taleb, in his book, “The Black Swan, puts it better:
“One day in December 2003, when Saddam Hussein was captured, Bloomberg News flashed the following headline at 13:01: U.S. TREASURIES RISE; HUSSEIN CAPTURE MAY NOT CURB TERRORISM.
Whenever there is a market move, the news media feel obliged to give the “reason.” Half an hour later, they had to issue a new headline. As these U.S. Treasury bonds fell in price (they fluctuate all day long, so there was nothing special about that), Bloomberg News had a new reason for the fall: Saddam’s capture (the same Saddam). At 13:31 they issued the next bulletin: U.S. TREASURIES FALL; HUSSEIN CAPTURE BOOSTS ALLURE OF RISKY ASSETS.
So it was the same capture (the cause) explaining one event and its exact opposite. Clearly, this can’t be; these two facts cannot be linked.”
Bottomline, avoid news as they pollute your decision-making and waste your time. I also urge publishers and writers not to write for the sake of writing. You are just adding clutter to the world.
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