The hardest part is not paying close attention. I know. You want to read everything. We have access to so much information. Real-time stock quotes and real-time news and it’s all jammed in our faces 24/7. But as I noted previously, all of this information isn’t making us better investors. It’s making us worse. Because it’s feeding off of every emotion we have. And when you let your emotions drive your investment strategy it always derails.
Are you still reading? I told you to stop before we started, but since you’re still here…let’s talk about things. After all, it’s important to be informed, but you have to ensure you don’t behave irrationally to being informed. Easier said than done when the world looks all scary again. And by “again” I mean at least once a year. That’s just what happens. The world is a big scary place and we’re all so interconnected that there’s a high probability that something scary will happen about once a year. After all, just think about the last few years:
- Remember how scary the flash crash was?
- Remember the Japanese tsunami?
- Remember the debt ceiling scare?
- Remember when S&P downgraded US government debt?
- Remember when Europe almost collapsed in 2011?
- Remember when Cyprus went through that silly crisis?
- Remember when the Taper Tantrum was going to derail the US economy?
- Remember when Greece almost collapsed last month?
And when the markets get scary people overreact, sell things at low prices, low prices eventually solve the problem of high prices and we go about our lives making stuff that makes our lives better and ultimately making everything more valuable. It’s a little more complex than that, but not by much. But if you get caught up in every daily or monthly move you’re guaranteed to lose sight of that bigger macro point.
Also, seriously. Stop reading this.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.