Consuming Financial News:
Does it Really Matter for Long-Term Investing?
When I first started my investing journey, I figured keeping myself well informed on the daily financial news was a must.
However, I realized consuming too much financial news is bad or pretty much useless for long-term investing as they are short-term in nature, can be confusing at times, and may emotionally nudge you to make unnecessary investment decisions.
I first came to be aware of how media builds narrative (providing a cause-and-effect explanation although there may be none) from reading a book called The Black Swan.
Below is an excerpt from the book, page 74.
Over the years, I have come across news headlines that share a similar characteristic as the above excerpt.
First Example – Effect of OPR Cut
On 6th May 2020, at 10.07 AM, The Edge Malaysia reported a headline saying OPR cut is negative for KLCI. Then a few minutes later at 10.42 AM, they reported the opposite.
In the above example, the cause is constant which is OPR Cut but two different effects were reported.
Second Example – Stock Price Movement
On 9th Nov 2021, at 5.26 AM, Bloomberg News reported PayPal’s stock price surge due to entering a business pact with Amazon but a few minutes later at 5.52 AM stock price fell to around its initial value.
In this example, a cause was provided for the first effect (stock price surge). However, a few minutes later the cause was no longer plausible as the stock price fell. I think even Bloomberg was laughing about it when they tweeted “nevermind”.
“There are two kind of forecasters: those who don’t know and those who don’t know they don’t know.”John Kenneth Galbraith
Besides narrative fallacy, there is another type of financial news coverage known as forecast or prediction. Below is an example.
On 2nd July 2022, there was a headline warning oil prices could surge to $380 due to the Russia – Ukraine conflict.
However a few days later 5th July 2022, there was another forecast of oil prices dropping to $65 a barrel due to recession fear. Two different forecasts from different entities in a matter of days.
Early this year 1st Jan 2022, the author of “Once Upon a Time in Bursa” Ng Zhu Hann compiled research houses 2021 local stock market forecast and the actual result. You may read the article here.
Above is a screenshot of the compiled data taken from the article.
Take Kenanga as an example. In early 2021 they forecasted the KLCI index to reach 1,711 at year-end. Then middle of the year they re-evaluated their initial forecast to 1,575. KLCI eventually closed at 1,543 at year-end. This is around 9.8% way off from the initial target and around 2.0% off from the mid-year target.
The forecast of other research houses was off the mark as well.
So, the question is, how much should we rely on financial news for long-term investment?
To be fair, it’s the job of the media to deliver news and provide reasoning and forecast as we consumers demand certainty in a world of uncertainty.
It’s good to read financial news to know what is going on in the market. However, we should treat them as the probability of events happening (good or bad) and not as a certainty.
Hence, we should not make any rash decisions that may derail our long-term investment plan based on overwhelming short-term news coverage.
In my opinion, financial news is meant primarily for short-term traders or speculators and not for long-term investors. At times certain news may appeal to us as they confirm our investment decision (confirmation bias). And at other times it may send us into a panic or worrying mode when there are negative coverages.
Over the long term though, the good and bad news should even themselves out and may deem insignificant to our long-term investment goals.
A part-time Malaysian blogger writing his thoughts online. Interest in both personal finance and economics, mainly the behavior aspect of them. I consider myself Poyo since I do not have any significant credentials in both fields, so readers beware. Thanks for reading.