Singapore-based financial blog that aims to educate people on personal finance, investments, retirement and their Central Provident Fund (CPF) matters.

Saturday, 3 January 2015

Why you should not follow the financial news when investing

Are you one of the "investors" whom invest in stocks after reading the hot picks recommended by financial banks or advisers? By faith, you trust them for their superior knowledge and right away, you jump straight into your investment. However, the share price immediately starts to drop and regrets sets in instantly.

This might be the typical story that you hear from the streets while chatting with your friends, where the "recommendations" might just differ and changed to "news" or "rumors". The only reason is because these "news" often lagged behind share price movements. Why is this so?

News directors and casters often do not have specialised knowledge in the functionality of the stock market. Their jobs are to attract viewers to their channel by offering information in return. To do so, these "information" must be carefully selected and presented to their type of audience such that they will continue to tune in to their channel. Who would want to watch something that they do not like or agree on? Furthermore, as much as the news channel wants to present information in real-time, there is often a delay as the share prices have already moved in retrospect to when the news is being aired.

However, this does not mean that news is an negative indicator of what to invest on. Rather, it is an indicator as to when you should invest in. What do I mean by that?

Since the news is a lagged indicator, if a stock appears in the news, the share price should have been reflected in the market. As such, usually by then, there are no more profiting opportunities. (By that, I mean usually). Ideally, you should invest before news are released and, in relation let the market reflect the share price.

If 2014 is a bad investment year for you, great! Now is 2015 and I hope that this post can help you in achieving your investment goals.

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