Saturday, 31 August 2013

Do not be blinded by financial news and commentaries

I was watching Channel News Asia during an evening that was showing business news. There was this financial commentator painting a bleak outlook on the Indian Rupee fall, backed with much economical and trade data. And when the host asked her directly on just how low the Rupee will go, she was stunned for a second, attemped to regurgitate the figures and data, and beat around the bush for the next 20 seconds.

Coincidentally my aunt was sharing with me her re-consideration on whether to invest, after listening to all the rather gloomy forecast by the market analysts.

We always hear news saying things like 'market plunge due to increasing fear of US attack on Syria..' or 'over night Dow Jones fall as tension at Korea Peninsula rises..' etc. News agency always seek to provide reasons for market fluctuations, attributing rise or fall to certain factors. In actual fact, there has never been a direct cause and effect relationship being established.

Here is the thing. Financial news agency are essentially content provider that generates financial stories, market analysis, price forecasting to be aired for profits. Their business viability depends on the constant generation of news. Likewise for market analysts and commentator, they are essentially being paid to share their opinion. Just because they are featured on tv does not make their interpretations of market anymore accurate.

These content are in demand because it  casts some science and logic onto the seemingly random stock price movements, and in process, giving a false sense of clarity to the majority layman investors, that market movements can be understood and predicted using some reasons, at least in the short term.

The fact is that market can rise or fall for any reasons in the short run. Nobody knows. Market is a gigantic organic being made up of billions of players including you and me, each with different interpretations of the news and their potential impact on market. While the events take place, news will be received by market participants, and further processed in the brain, into all sorts of different opinons. Trying to attribute certain market movement to a particular reason is akin to attempting to establish the collective perception of billion other market players on the events that took place. How can that be possible?

If there is no relative soundness to all these reasoning, we should not really be affected by market news and analyst's opinions. There will always be some negative news that they will attribute the market fall to such as high oil price, end of commodity cycle, global warming, island dispute etc. However, this should not paralyse us from taking action on our investment. 

Instead, focus on company's fundamentals. Is the revenue growing? Is it gaining market share? Is the cashflow increasing? Are there new products being launched? Is the dividends stable? Is it earning more money than last quarter?

Company fundamentals should be the considerations that dictate our investment. Not the gloomy forecasts put forth by some commentator, or some advice presented by analysts on tv programmes.

Some news are meant to be heard and forgotten, such as the market commentary or analyst opinions. These are background noise. At best they could be reference information, but nothing more than that.

Some news are worth taking note of such as indusrty development news, launching of new products, implementation of new strategies, establishing joint ventures etc.

You can hear many many news, but be selective about what you listen to! Filter out the background noises, and you will be able make decisions better with clearer thought process.

5 comments:

  1. Hi there CSCCC,

    What does your current portfolio look like? How did you arrive at the decision to invest in these companies? It would be interesting to hear about your journey and analytical thought process from a value perspective. There aren't too many financial bloggers around who blog from a value perspective (most talk about "yield" for some reason). So looking forward to finding out more about your portfolio and your approach to searching for good companies.

    And yes, good posts which you have done so far. Ignore noise, find out what has been priced in, keep your emotions in check and stick to the business. All these are important for you to be a good and disciplined investor.

    Keep up the posts.

    Regards,
    Musicwhiz

    ReplyDelete
    Replies
    1. Hi MW,

      I am excited to see your comment as it is the first one! Thanks :)

      My portfolio consists of 6 counters.. I classify them according to peter lynch's categories. There are assets play, cyclical company, small cap dividend counters and blue chip dividend play..

      I plan to keep the portfolio focused on not more than 7 counters.. do not really believe in diversification..

      Yes I am working on sharing my detailed fundamental analysis on specific companies and will eventually share them. But now they still need a little honing and sharpening .

      Delete
  2. Hi CSCCC,

    Interesting, not many really go into detail into Lynch's methods and his classification. I have read "One Up on Wall Street" a few times and understand how he classifies his companies. However, do note that this is from a USA perspective and may not necessarily apply to Singapore companies, many of which are not truly "global".

    Another interesting thing is the way you value each company is also different. Cyclicals are different from stalwarts which are different from asset plays. It would be fascinating to find out your methodology for each.

    Anyway my blog is now defunct (stopped in Jan 2012) but you can visit there and read about my process. http://www.sgmusicwhiz/blogspot.com

    Regards,
    Musicwhiz

    ReplyDelete
  3. Great post,I really appreciate your post and you explain each and every point very well.Ali mudeen

    ReplyDelete
  4. I appreciate you and I would like to read your next post. Thanks for sharing this useful information.
    when you start a business then at first you need every business related news. we find a real news that help for your business.
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    ReplyDelete

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