First Page

The news is not for you

As an investor, don't get too bothered about what is happening in the world

The news is not for you

Many decades ago, when I was a teenager, I went with my family to stay in my ancestral village for a few days. We took along a portable TV that my father had just bought after some difficulties with batteries and a bamboo pole on which the antenna was mounted. The TV was placed outside the house and quickly became the gathering place for a large number of people every evening. This being the 80s, watching Doordarshan was the only thing one could do on a TV and that too only during the day because every night at 10 or 11 pm (I forget which), the announcer would ceremoniously bid the audience goodbye, and the TV signal would cease.

In any case, by that time of the evening, most of the gathered audience would already have left for their homes because back in the day, early to bed and early to rise was a rule, at least in rural India. However, one very old man would always hang around and sit alone in front of the TV till the end of the transmission. One day we asked him why he did so. He shyly told us he stayed on because the lady on the TV said namaste to him. You see, he had realised at some point that even if he was alone, she still said namaste. This was evidence that the namaste was meant for him specifically.

In terms of the impact of the media - and now social media - things have come very far since those simple times. Over the last many years, I've written several times about the toxic effects of too much news and media exposure on savers and investors. Over the last two years, the Chinese virus, the Ukraine war, the Taiwan crisis and the self-inflicted economic crisis in Europe have worsened everything. At some point during the pandemic, while rereading a great book by the 'undercover economist' Tim Harford, 'Adapt: Why Success Always Starts with Failure', I realised that the underlying problem with too much news is one of the faulty feedback loops.

Sounds strange? Perhaps, but hear me out. In any process, be it your investments, driving a vehicle, or someone deciding on the correct policies to limit the spread of disease, success comes from fine-tuning the inputs based on their effects. The first thing you try is rarely the correct one. As Harford puts it in the subtitle of his book, success always starts with failure. Generally, one has to start with an estimate or even a guess. Then, you see what effect it's having, and you modify the strategy. Perhaps the modification is good, or maybe it's bad. Either way, the cycle has to be repeated. This is the feedback loop, akin to what engineers build into all kinds of systems.

Feedback loops have to be just right, which is something engineers understand. They can lead to useless, almost random actions if they are too rapid and too strong. They can be ineffective or late if they are too slow and too weak. We saw plenty of the former around the world regarding COVID policies. More to the point for this article, we see far too much of it in how investors manage their investment portfolios.

When influenced by the media and social media, the feedback loops become faster and faster. All the time, the implicit message is that short-term events matter to all investors, and if you are an investor, you must be glued to the news minute-to-minute and be prepared to react at a minute's notice. Nothing could be farther from the truth.

Many people mail me asking for investment advice and solutions to their investment problems, and I've always seen that most problems arise out of things someone did or didn't do over months and years. Similarly, fixing those problems also involves taking actions that need to be sustained over months and years.

There's nothing on TV, Twitter or WhatsApp tonight that will help you.

Suggested read:
COVID, war and things like that
What matters and what does not

Other Categories