Cable and online financial news (for the average investor) can also be overwhelming and cause investors to make mistakes. The term I use for this news is “Financial Pornography”. I can think of many bad decisions made by viewers of financial porn but narrowed it down to four mistakes the average investor is likely to commit because they spend too much time watching and reading financial porn (financial news).
• Overreacting to Short-Term Market Fluctuations
Financial news outlets often focus on short-term market fluctuations, highlighting daily or weekly gains or losses in the stock market. However, these short-term fluctuations are often driven by noise and do not necessarily reflect the long-term performance of the market. The average investor is not investing for a day, week, month or even a single year. Investors who focus too much on short-term market movements may be tempted to make impulsive investment decisions, such as buying or selling investments based on daily news headlines. This can lead to missed opportunities and does lead to lower returns over the long term. 1
The investor’s chief problem—and even his worst enemy—is likely to be himself.
Benjamin Graham
• Chasing Performance
Financial news outlets often highlight the top-performing investments or asset classes, leading investors to chase performance by investing in the latest hot stock or trend. However, these investments may be overvalued and may not continue to perform as well in the future. By chasing performance, investors may miss out on better long-term opportunities and may be left with underperforming investments. 2
• Trading Too Frequently
Financial news can create a sense of urgency for investors to make frequent trades in response to market movements or news events. However, frequent trading can lead to higher transaction costs, lower returns, and increased tax liabilities. It can also increase the risk of making emotional investment decisions based on short-term market movements rather than long-term investment goals.
The stock market attracts two types of traders: long-term investors and people wanting to do casino gambling. The trouble comes when these two categories are allowed to trade together.
Charles Munger
• Ignoring the Importance sticking with a Long-Term Investment Strategy
Financial news can create a sense of urgency for investors to do something, take action and make investment decisions quickly. However, successful investing requires a long-term investment strategy that is focused on achieving specific financial goals over time. By ignoring the importance of a long-term investment strategy, investors may be tempted to make impulsive decisions based on short-term market movements or news events, which can harm their long-term financial prospects. Activity does not necessarily mean you are making progress toward your financial goals.
In conclusion, the financial news can provide valuable information for investors, but it can also be overwhelming and lead to costly investment mistakes. By avoiding these common mistakes and focusing on a long-term investment strategy that is diversified, well-balanced, and focused on achieving specific financial goals, investors can achieve better long-term investment results. It’s important to remember that investing is a marathon, not a sprint, and that patience, discipline, and a long-term perspective are the keys to success.
One of the most helpful things the average investor can have is a financial advisor whom they trust has their best interest in mind. That is called a financial fiduciary, an advisor who must act in your best interest. An advisor can help you develop a strategic long term investment plan and help you stay focused. You can reach out to us by email [email protected] or call us (864) 862-9269.
Dave Conley, CFP
1 Frequent Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors https://faculty.haas.berkeley.edu/odean/papers%20current%20versions/individual_investor_performance_final.pdf
Trading More Frequently Leads to Worse Returns
https://www.aaii.com/journal/article/trading-more-frequently-leads-to-worse-returns
2 Timing Poorly: A Guide to Generating Poor Returns While Investing in Successful Strategies