The motto in the news business seems to be “If it bleeds, it leads.” Investors must appreciate that our news is packaged by the news media in a manner to motivate the audience to tune in. It is thus sold for the benefit of sponsors, not for the benefit of the public. The headline “Dog Bites Man” is not news, but one reading “Man Bites Dog” surely is.
I have my own filtered definition of news. I consider hard news to be earnings announcements which occur on a predictable calendar basis and are reported as data points. The gossip before earnings are announced and the commentary afterwards are the soft news reports which I completely ignore. Reported earnings, in my book, are relevant data points and I do pay attention. My personal description of news is that certain unexpected events, such as merger rumors, labor strikes, management changes and accounting irregularities, do tend to move the market wildly up or down. I do not, however, base my trading on these events. This is the arena of the programmed trading firms with expensive super-fast computers and event-based algorithms that continually scan live feeds and watch for news that could affect a publicly traded equity.
This is the day trader’s sandbox. Not mine. I’m a position trader. In much the same way that I like to let IPOs play out for at least six months before I begin accumulating a position, I like to let the markets digest the news before I jump in executing trades. If the basic trend of the stock chart does indeed change, I will act appropriately, but I’ll let the market digest the actual newsworthiness of the report over a couple of days. For me to try and guess correctly which way the price will move based on fresh news is a gambling game that I’m not willing to play.
Yes, I’ve heard from a few active traders who enter two trades – one long and one short – just so they can supposedly profit from these volatile news events. But my observation is that the majority of investors get whipsawed and stopped out for a loss as the stock price gyrates wildly above and below the basic trend of the equity. My point is this: all investors must know the timeframe they trade and align it with their actual trades. If and when you venture outside of your personal “trading time zone”, the market will slap you down more often than not. Trying to be an occasional day trader does not work.
News, by its very nature, can cause wild short-term moves in the market because the news media panders to investors’ basic human need for information and their impulses to act emotionally upon that information. Financial news often gets sensationalized with reports at one extreme or another. The more dramatic the news, the more investors tune in and the happier the sponsors who are paying to present you this news. It’s an ongoing cycle that’s alluring and predictable. The news pendulum swings from euphoria and creation at one extreme to fear and destruction at the other extreme, as the media seldom maintains a calm equilibrium.
I bristle at pronouncements by news purveyors who boldly and proudly claim they’re objective, neutral and impartial in their reporting. That has not been my experience. I won’t even get into why it’s so important for certain countries to control their news agencies and illustrate how they use those tools to influence the public and their stock markets. But layer on top of that the ability of sophisticated media manipulators who plant disinformation in hopes of moving equity prices to their benefit – trying to create buyers or sellers. It becomes crystal clear that trading the news is a losing proposition for the vast majority of investors. Forget the news, and focus instead on the internal trend of your equities’ chart patterns.
I was trading the markets in 1994 when Netscape released the first Internet browser. I can attest firsthand to the massive expansion and sheer volume of news made available to individual investors and dispensed at a speed never deemed imaginable. The information overload of “breaking news” can devastate most investors’ profitability if they submit to its siren call. Even the biggest and best fund managers often candidly express their frustrations with managing portfolios in our 24-hour news environment. News events often cause unpredictable volatility in prices and thereby widen the bid-ask spreads for these equities, making it more expensive to trade for all of us.
After all these years in the markets, the bottom line for this investor is to always have my trading plan in place, understand the timeframe I trade and build wealth by riding the markets as a position trader with a solid well-planned asset allocation.
News is simply bubble gum for the mind. I very rarely trade in bubble gum stocks.
Trade well; trade with discipline!
-- Gatis Roze
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October 17th, 2015- ASSET ALLOCATION WORKSHOP with Gatis Roze & Chip Anderson.
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