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Good News is No News

You might find it entertaining to track it closely, but from an investment perspective, news is generally useless, or worse

So what do you think is going to be the impact of the Barack Obama’s re-election on your investments? Or that of Arvind Kejriwal’s latest expose? Or the government’s decision on telecom licensing? Or of whatever is happening in Europe now (I’ve completely lost track) or even the Reserve Bank’s credit policy last fortnight? The likely answer is nothing.

I’m not sure whether the editors of this newspaper will appreciate my saying so, but there’s likely no news in it that could be useful to you as an investor. The opposite is also true—there’s nothing here, which, if you miss, could be harmful to your investments. Let me hasten to add that I mean this newspaper only in a generic sense--this uselessness is true not just of the Economic Times but also of all newspapers. Of course, this applies only to news in the narrow sense—the column that you reading right now is extremely useful, as should be other columns, opinions and such.

This seems like a surprising thing to say. It seems almost axiomatic that the fate of equity and other investments depends on what happens in the world and that news is the way we find out what is happening in the world. After all, the entire business news media surely exists only to serve this need. In fact, business news on TV seems far more dedicated to this idea than does business news in newspapers. The anchors always seems to be implying that whatever happened over the last couple of hours is the most important thing that has ever happened. It’s as if the whole of human history has been carefully sorted in ascending order of importance and there was never a day in the past that was more important than today.

One result of this is that the importance attached to events starts looking overdone very quickly indeed. Take the US elections, for example. On the morning of November 7, in the hours after Obama’s victory became certain, there took hold a view that this was going to be a disaster for India. Supposedly, the reason was that Obama was going to ‘crack down’ on outsourcing and the prospects of Indian IT services firms were going to become much worse. It all appeared to start from a casual comment from an IT CEO that Obama had probably seemed more concerned than Romney about job losses to outsourcing. From there on, one commentator after another took this up, with each one trying to be competitive about being able to foresee an even stronger impact. It was like an echo chamber, with each echo shriller than the previous one.

It would seem that you can’t just come on TV and say that well, yes the US presidential elections had happened but there would be no impact on India in any way. After all, that is the most logical thing, isn’t it? Nothing has changed—it’s the same guy with the same congress, the same politics. Even his slogan was that he wanted four more years to finish the job—the same job, not a different one. Now, when a few days have passed by, some of the things that were said that day seem ludicrous but by now the circus has moved on and is showing some other act.

The collective message of this behaviour is that the investor comes to feel that short-term events are important and that monitoring their hourly impact on investments is the most important thing that an investor can do. This is very far from the truth and a positively harmful idea to absorb. If you look at your actual investment track-record, you’ll likely discover that the strongest impact—positive or negative—came from things that took months and years to develop and that you had a lot of time to understand them and react to them. In fact, it is probable that the worst investment decisions you took were quick reactions to news that looked important at the moment.