Some investors think that watching the markets is vital. We think more often mis-understood. The key reason is that people often end up reading, and trading on, the wrong information. Surely all information is worth looking at? Sadly, a lot of market information and posts is sheer and utter guesses. That’s right, it’s just made up. Reading it actually makes you dumber in our opinion.
Here is an example I’ve found just today for this post. I could have found hundreds.
“Oil rises on stimulus hopes” http://www.cnbc.com/id/101212557
Think about this like a scientist. How do they really know what each oil trader was doing, deep in their heart? Why each trader did the trades they did?
Ask one or many?
they call one or two oil trading contacts and ask them “what happened today?”
where they call each and every individual trader participating in the market and ask them why they executed each and every trade they did.
Of course the first option.
No-one has the time or resources to do call everyone. Are they God? Clearly not. So it is just a guess. It appeals to the narrative fallacy that we all succumb. People also want “the latest news” which for some becomes a constant need. People want to buy this stuff so the news wires produce it. Those headlines are just nonsense though.
How can you be sure it’s made up? Because journalists have told me.
For example earlier this year we caught up with an old financial news-wire friend for coffee. To protect him/her we can only give you a list of Bloomberg/WSJ/Reuters/AP.
I asked them how did they know that the US market fell on profit taking or that AUD was up due to concerns China’s reform program?
He said they needed to produce content. All the time, several stories a day, often little bit-sized pieces. They would have friends in the industry to come up with a reason. It didn’t matter what, as long as it “was from industry”.
Industry only cared as long as they were quoted by name to help build their profile. Quotes like “Jack from Zeus management in a team responsible for $10 billion thought that…”
How much accuracy was there to currency reports? “I have no idea, not very much”.
Industry actually prefers to give quotes about recent market move intentions, because they are ultimately unprovable, one way or another.
So stop wasting your time reading the newswires and following the latest scroll bar on Bloomberg TV or CNBC. There is a reason that we don’t have a TV screen in the office. It’s just a distraction from the real information, which is out there buried, waiting to be dug up, analyzed and revealed. Real information like profits, assets and sales. The filings of company’s balance sheets and income statements. Picking out the real facts from the noise is tiring, but vital.
For the economy and financial system it is a quick accumulation of debts or an overwhelming confidence for several years that leads to mistakes.
But why oil fell by 0.3% or the Dow rose by 0.2%?
Couldn’t matter less. It’s just noise to tune out.