| Hello Reader, Thanks for your great feedback on the email I sent you on Monday. In case you missed it, I talked about pitfalls facing ETF investors, and shouted from the mountain top: “Don’t overtrade! Don’t buy flashy products! Don’t speculate!” But today, I want to share with you more of a “do” than a “don’t.” It’s something you can try out immediately and change how you approach investing (for the better). It is deceptively simple: Turn the volume down on the short-term noise. We are bombarded with news. Back in 2011, a study of investors found that 35% said they spent at least two hours a day following the financial news (this was after the stock market had a rocky month). Why is this a problem? Human psychology, dude. Endless studies show that the more things competing for your attention, the harder it is for you to figure out which ones matter. You’re consuming everything in one big ball. The Effects of All This If all you listen to is short-term noise, there’s little space left for you to be a long-term thinker. Studies have shown that reprints of old news actually spur market reactions. How can you be sure that what you’re reading is new? Perhaps it’s time for some quality control? Apocalyptic news sells. When you’re reading it constantly, what knock-on effect do you think that has on your investing? Two hours a day is a lot for an individual investor to spend consuming financial news, but it’s still not even close to competing with the pros. It’s—as one person who took my ETF survey said—“just enough to be dangerous.” Let’s take an example. When Britain voted to leave the EU last year, it temporarily rattled the markets. If you had been invested in the Vanguard FTSE Europe ETF (VGK), you would have experienced a stomach-churning drop of 11.3%. You would probably have been tempted to sell if you were listening to the headlines... “Brexit cost investors $2 trillion” — CNBC, June 26 “UK markets shudder” — Reuters, June 24 “Brexit: Trillions in Wealth Destroyed?” — Seeking Alpha, June 24 If you didn’t have conviction in VGK or Europe, you would likely have panic sold the drop. And if you did, you would have missed the recovery... As of October 9, VGK is up 36% from its intra-day low on June 27, 2016. Don’t Sell Short-Term Noise I got thousands of responses to the ETF survey, and one of the takeaways is that there is so much confusion around ETFs. And one of the reasons for this is that media coverage of ETFs can be confusing. Am I telling you to throw your phone out the window and await the daily newspaper? No, I am not. I am saying that you need to be sophisticated in what you consume. Wouldn’t it be nice to be confident enough in your own knowledge that you don’t feel a gnawing fear when you read something? Imagine that you’re happy with the ETFs you’re invested in for the long term and don’t feel like you have to trade on a daily basis... Wouldn’t you feel better? When you lower the volume on the short-term noise, you can then take the next step on the road to successful ETF investing: long-term thinking, which begets long-term ideas. So, while it’s important to stay informed, you might not want to act on every piece of news in real time... just because you can. I’d love to hear your thoughts on this—do you think reading too much financial news without any filter blurs your thinking? Let me know here, and please share any questions you have about this email or ETF investing in general.
Jared Dillian
Editor, The 10th Man
P.S. – In my next email, I’m going to talk about what you should do once you’ve turned down the volume on short-term noise. In other words, time for idea generation. You don’t want to miss it. Watch out for it on October 13. | 