Not Watching the Financial News Will Make You a Better Investor

I used to spend 15 hours a week watching the financial news. When I got home from work, Jon and I would watch Mad Money. After that, we’d dine in front of the TV watching the Nightly Business Report. If I happened to be working at home, CNBC might be playing in the background.

I don’t watch that stuff anymore.

When the housing market came crashing down in 2007, I watched the talking heads scramble to explain. When the stock market followed, my ears pricked and palms sweated as I tried to pick which stocks would fall and which would be the safe harbor.

I watched the market fall and rise again, slowly, surely, just like all of the talking heads said it would.

Watching financial news was tremendous entertainment, especially from 2007-10 when I spent a bunch of time watching it. If you want to be a better investor, though, you’d better turn it off.

No Financial News is Good News?

Look, I’m not saying there isn’t some value to watching or reading any financial news.

It’s a good idea to keep current on general economic trends. They do affect your life, job prospects, career trajectory, the ability to borrow money, and a host of other potentially life-altering factors.

You should also stay up to date on the trends that relate to the industry you work in. Learning as much as you can about your employer, competitors and customers will make you much more effective in your work.

I’d also make the caveat that consumer news tends to be enormously useful. New products and service announcements, reviews, and recall notices make you a smarter shopper.  Consumer news can also a lot of great advice on finding good value and avoiding scams. There are shows, too, that do a good job of promoting financial literacy (I used to watch a lot of Suze Orman and Clark Howard.) Documentaries can raise important financial and economic questions, or help us understand complex information like “What is a subprime mortgage?” or “Why is US Higher Education so darned expensive?”

And, I’ll admit, Jim Cramer is entertaining, with his yelling, sound effects, and Lightning Rounds. If you find financial news fun, watch to your heart’s content.

Just don’t expect it to make you a better investor because the nature of financial news will probably make you a worse one.

Why Financial News Won’t Make You A Better Investor

The structure and premise of financial TV news undermine the traits that make good investors: prudence, discipline, and patience.

If you’re watching the financial news to make yourself a better investor, what are you expecting to get out of it?

The premise of most financial news shows is that they will provide you with the information you need to either pick better investments than you would pick otherwise, or help you time your buys and sales better than you would otherwise. By paying close attention, you should be able to make better than average calls with your investing dollars.

That’s a nearly impossible task.

Mutual fund companies devote an enormous amount of resources so that teams of extremely intelligent people can spend 80+ hour a week trying to make better than average calls with their investing dollars. Most of them don’t succeed.  Even with all of their efforts, most actively managed funds finish worse than a good comprehensive index fund over time.

You can make money in the stock market, but it’s probably going to be despite rather than because of anything you see on TV.


Not Watching the Financial News Will Make You a Better Investor

Undermining Prudence: The Ratings Game

Financial News is tilted toward ratings. Producers will go for the most sensational stories they can find,  and tell them in ways that emphasize the titillating or scary parts. They want you to keep watching, and that means they emphasize the exciting.

The problem is that exciting stories don’t make for prudent decision-making.

Prudent decision-making in stock-market investing requires one of two different approaches: either you sort through a ton of information to make a good decision on individual investments, or you invest through mutual funds or index funds so you don’t have to make those decisions.

TV isn’t going to address either of those approaches. The first entails too much detail for a TV audience, and the second is too conventional to make for exciting TV. Instead, financial TV hits the highlights on a few big-name stocks: daily price movements, earnings, maybe a P/E ratio. If you’re going to pick one, that’s barely a starting point.

Mutual or Index funds? Other than getting a few soundbites from the odd fund manager, they rarely get mentioned at all.

Even if you’re just trying to find a good investment, you’re probably not going to find it on a financial TV show. But what about better timing?

Undermining Discipline: Contagions

Financial news tends to get you caught with the rest of the herd.

Watching the Dow drop like a stone or spike over 22,000 points is probably great for CNBC’s ratings. It’s kinda like watching the Super Bowl, without the pizza and buffalo wings, with your portfolio standing in for your team.

Unlike the Super Bowl, though, pretty much everyone is rooting for the same side, and everyone gets excited or despondent together. Panic and over exuberance are catching, especially when what you’re watching on TV is carefully exploiting your fear or enthusiasm to keep you tuned in.

Once you’ve caught those emotions, you’re going to be tempted to act.

But good investors are those who can, to quote Warren Buffett, “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful.” To do that, you have to tune out what everyone else is doing and keep working your investment plan. Disciplined investing, not impulses, will get you where you want to go.

Undermining Patience: Long Term vs Short Term

Investing, for most of us, is a long-term process with long-term goals…retirement, financial independence, or college tuition payments. That means the last thing most of us need to worry about is our investment results over the next quarter. Most of us are far more successful with time in the market rather than timing the market. 

In 3 months, my life (and my investment strategy) are going to be pretty much exactly what they are now. My savings rate or spending might fluctuate a little, but it shouldn’t cause any major changes in my investments.

Financial TV shows, however, focus on short-term results. Next quarter is about as far out as they want to discuss most investments, even though you are probably trying to build a portfolio that will pay off for decades.

But if you watch much of it, you’ll get focused on short-term price fluctuations. You’ll be tempted to churn your portfolio to react to minor changes. That will cost you extra fees and a peaceful night’s sleep.

Become a Better Investor by Not Watching the Financial News

Financial news shows aren’t going to make you a better investor. Instead, they’re going to tempt you into making mistakes based on impulses, short-term thinking, and a herd mentality. 

Turn ’em off. They’re a distraction from the things that will make you a better investor.

Which is what exactly?

Knowledge, patience, and steady nerves. Learn about investing, and then start implementing a strategy you find comfortable and sustainable.

  • Read books on investing. For the most part, books are best because they’ll focus on strategies rather than particular stocks. An hour with a basic primer like Investing for Dummies will probably get you on the right track faster than a week of 24-hour business news. I really like index funds, and for that, it’s hard to beat John Bogle’s The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns.  But if you’d rather pick your own stocks, you can take a crack at Benjamin Graham’s The Intelligent Investor.
  • Read blogs on investing, but not for picks. If shorter is better for your attention span, then read investing posts that focus on financial literacy. Learn the terms of investing, the options for investing, and basic strategies for putting money aside each month. I wouldn’t recommend following someone else’s picks, but plenty of people provide good general advice and information.
  • Experiment with an online stock market game. If you want to try your luck (without risking your capital) then try playing in an online stock market game. MarketWatch has several. Play with virtual money and see how you do.
  • Talk to a Fee-Only financial planner. If you’re ready to invest, but don’t want a completely DIY approach, pay for a session with a fee-only financial planner.  They’ll help guide you into the right investment strategy for your situation and risk tolerance. You’ll be confident that you’re working with someone who doesn’t suffer from conflicts of interest.
  • Invest, and invest frequently. Once you’ve identified your strategy, start investing. You may make some mistakes and that’s okay. The important things are to put some of your money to work so that it can grow to the nest egg your future self needs. Ride out the peaks and valleys, and don’t look at your balances too often. With prudence, discipline, and patience, you’ll reach your goals over time.

Do you watch financial news shows? Why or why not? What resources have you used to become a better investor?

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*Part of Financially Savvy Saturdays on brokeGIRLrich.*

18 Responses to “Not Watching the Financial News Will Make You a Better Investor”
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