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News, hype and equities

Ignoring the noise around investing has never been so difficult and yet so necessary

News, hype and equities

What a noisy time it has been. Since about February 2020, when China's virus started spreading around the world, investors' decisions have been almost entirely based on unusual events. Although reacting to news has always appeared to be an integral part of deciding whether and what to invest in, the scale and nature of what has been happening since is somewhat unusual. Over the last three decades, all of us who invest in the Indian equity markets have been used to huge economic cycles, deep changes in the way the economy works, a complete revolution in the market's operations and of course, more than a fair share of scams.

And yet, the last year-and-a-half has been unusual even by these standards. The first pandemic in modern times, a global economic disaster caused - let's be clear about this - not by the virus but by every government's ham-handed efforts to cope with this virus, and to top it all, a bizarre mass psychosis under which a lot of people have come to believe that a digital ponzi scheme is actually some kind of a universal currency of the future which will replace all currencies in the world. Exciting times, indeed.

For investors, the problem is to stay focussed on what is normal and what is noise. We live in a time when there seems to be a huge noise industry in this world. However, far from this noise, our lives have to go on. We have to work every day, make a living, save money, bring up our children, take care of them, educate them, save for our old age, pay medical bills, etc. etc. etc.

At the level of businesses and entire economies too, there is an equivalent dichotomy between the reality and the noise. The vast majority of businesses have to quietly labour on day after day, produce goods and services that customers will pay for, try and get more customers every day, try and increase margins, keep costs under control, improve products, keep up with technology and simply do so many other things that are needed to keep the ball rolling, even if the path is uphill.

As an investor, and even as a professional or a businessperson, it looks like that our main job is to absorb and analyse the noise and then use it to make investing decisions. However, the real job is to ignore the noise, or rather, to figure out what the noise is. At this moment, our main job as an investor is not to figure out the new age IPOs of loss-making companies, no matter how much noise the hype industry has made around them. Most certainly, it's not to pay serious attention to noise about bitcoin or how it will take over the world.

Beyond all this is the persistent reality of businesses that need to make money and need to go on making more money every day. However, fundamentally guided investors know that they must stay rooted to the reality of what is happening. The big picture is not always relevant. Sometimes, the individual trees are more important than the forest. The big picture, even beyond the noise, is that the fears of mid-2020 have not been realised and that equity prices have run ahead of themselves. However, at the end of the day, we invest in individual stocks, not in news items or in data.

It's no one's case that events do not have any impact. However, it's impossible for the individual investor to map them sensibly to any action that they can take. We've had a string of high-noise events over the last few years, emanating from various crises around the globe. However, I cannot recall any where the obvious first response has eventually proven to be anything but a counterproductive knee-jerk reaction.