Evaluating the value and quality of your investing information

By David B. Armstrong, CFA | Apr 13, 2020 | Invest My Wealth, Weekly Market Commentary

I met Richard Bernstein, from Rich Bernstein Advisors back in 2005 when he was the Chief Investment Strategist at Merrill Lynch. On a trip to New York City, I reached out to him over email and asked him if he would meet with me for an hour just to chat. Fully expecting him to say “no,” I was pleasantly surprised when he agreed.  

I met him in his office, and we talked for an hour about managing portfolios using ETFs. He directed me to his book called “Navigate the Noise: Investing in the New Age of Media and Hype” which he wrote back in 2001. 

In that book, he has a fantastic quote:  

“Today’s investors find it inconceivable that life might be better without so much information. Investors find it hard to believe that ignoring the vast majority of investment noise might actually improve investment performance. The idea sounds too risky because it is so contrary to their accepted and reinforced actions.”  

I found the book fascinating because it provided me with a thoughtful road map for how I could navigate portfolio management for clients during a time where access to information was rapidly increasing. His strategy focused more on sorting out genuine wealth advice while being incessantly barraged with useless information.  

Or, as he describes it, “noise.”  

He goes on to classify useless information as “rumor, innuendo, chat rooms, whisper numbers, and stock price momentum that has replaced strategic planning, fundamental research, discipline investment approaches, and risk analysis.” 

Noise hurts investors. It drives irrational behavior. Unlike in textbooks and academic theory, investors are generally not rational decision–makers, nor are they ever operating in perfect markets. Rich’s goal with the book was to help investors with rational decision making by differentiating between noise and useful information.  

“Follow the financial press daily if you like the entertainment,” he wrote. 

But he goes on to warn that, “The noise is a siren’s call, its lure is hard to resist.” 

It’s hard right now…with so much noise.  It’s hard for people to be discerning with so many people on TV speaking about an investment strategy or trading idea. But the people with the most vulnerability to the noise are the people with no PLAN – those people with no system, process, or person to help them determine the difference between good and bad information.  

This forces them to rely on their instincts, their gut…when they really need to rely on their brain.  

Time and capital are two resources that an investor must protect.  Capital is self-explanatory – you save, invest, and grow assets to fund your long-term goals and objectives.  

Protect that. 

But time…time as a resource is often misunderstood, at least on the surface.   

Yes, investors can stop wasting time analyzing useless noise; that’s obvious. You want to protect your time. 

But, “investing time over a lifetime” is a resource that cannot be wasted – because it can never be regained.  Markets recover, but we can never recover time.   

Time can become punishing to investors who have less of it to leverage and don’t protect it well.  But the need to protect THAT time is not instinctual, especially in the face of so much noise.  

Take this last week for example. The S&P 500 had its best week since 1974, rising about 12%. It is now 21% up from its March 23rd low. The Dow was up about 13% and is now 28% up off its low, and the tech–heavy NASDAQ was up 11% and is now up 23% from its low. (Chart: Bespoke) 

By March 23rd, the S&P 500 had fallen 34% off its all-time high.  That means the S&P 500 needs a 52% return to get back to the all-time high.

After last week, long-term investors are halfway there. But investors who miss weeks like that because they’re processing headline news as quality investing information rather than as noise are being punished.   

That’s not to say we can’t leg right back down from here, but no one can know that…it’s unknowable.  

Regardless, I’m worried there are still people out there assessing the noise as quality information and using that to time getting into and out of the market. Investors MUST assess the quality of the information they act on as well as determine who they should listen to.   

Investing based on noise or bad information can impact a decade of an investor’s lifetime. 

Right now, there is no better time to evaluate the value of your information.

Keep looking forward, 

Dave

 

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