Making Sense of the News

As a stock investor, you are a stakeholder of a business, a minority owner. Which means that while you’re likely not making day-to-day operational business decisions, you must keep up with the goings on of every company you own. If one of them launches an important new product, or is fending off a tough competitor, or is named in a federal lawsuit, you want to know that. While it’s unlikely that on any given day there could be news which affects your decision to buy/sell/hold, you nonetheless must stay abreast of relevant information. The days of “No one ever got fired for buying IBM” are over. “Set it and forget it” only works on indexes.

In fact, the vast majority of the time I spend on my stock portfolio is reading the news. Business news, financial news, economics, politics, even a little style and entertainment. Most money managers and professional investors depend heavily on a combination of quarterly and annual reports, press releases, earnings calls and executive speeches and interviews— all of it issued by the company in question and all of it subject to its self-interested spin. Systematic, by-the-numbers investors will distill all this information, along with some competitive and market analysis, into an expected valuation. And that informs their expectation of price increases or decreases ahead and drives their investing behavior.

But I generally don’t spend much energy on what the business tells me or wants me to think (beyond its statements regarding strategy, focus, executive rotation, and its own projections of profits). I believe real-world valuations must be more nuanced, must incorporate sentiments already noticeable that might have nothing to do with a dense spreadsheet. I believe Mr Market invests in one stock over another partly for expectations of profits and rates of growth, and partly due to a much more subjective story. But notably, story is difficult to define. It’s driven by a combination of founder narrative, competitive positioning, spin, news cycles, and I think, investor and employee hope. 

 

Bloomberg terminal

To some degree, story is what they say in the news. Business tales told by The Wall Street Journal, CNN, CNBC, Bloomberg, Investors Business Daily, Fox Financial, The New York Times, Reuters, The Financial Times. Founder and exec profiles in Wired, Vanity Fair, Forbes, on Verge, MarketWatch, and so on. Their articles are made of a combination of factual data and some sort of narrative structure. This may not be the world of analysts from the big Wall Street banks, but it is the stuff of rationality and decision-making for investors large and small. Even Blackstone managers and Goldman Sachs traders read news on the train.

  

Obviously, there is a great deal of news. And you must decide what not only the authors of your news but the source. Did you find it on a social media platform? On TV? An actual printed newspaper or a news website?

I don't consider news that I found on Instagram, TikTok or the like. I also don't watch financial TV. This policy gets lots of pushback from inhabitants of that universe. TV folks like to believe they are the center of the media landscape for something which moves as fast as markets. How else to get minute-by-minute updates and analysis? They might be right about that, and certainly there are some super smart TV journalists who do a great job explaining what's happening in the stock market. But for me, as a delivery medium, TV with its always-on breaking-news bent encourages trades. On TV, there's always a reason to buy a stock to take advantage of a moment, or to sell a stock to get ahead of a bad turn:

"Obviously a merger between these two industry giants could completely alter ..."

"Just this morning we started getting word that Congress is looking into unfair practices  ..." 

"If we look at where this business was just weeks ago, today's stop-down would indicate .."

Yet I don't want to trade more. I want to trade less. Study after study shows that trading on news equals more churn in a given portfolio, and more churn— trying to catch and leverage those daily bumps up and down— negatively impacts returns. I'm not buying stocks, I'm buying businesses. The goal is to own those businesses for many years.

Choose news sources you trust, because while the facts might (or might not) be the same from most media outlets, how the story is told will affect your view of the subject company. You’ll learn to separate information relevant to  your long term share ownership from information whose impact will fade in days or weeks. You’ll learn that both market corrections and economic recessions are temporary conditions. You’ll start to recognize that today’s scandal could turn out to be tomorrow’s publicity. That one or two quarters of lousy earnings generally will not break a business. That business leaders are humans and so sometimes make mistakes or act like idiots. Likewise, that a brilliant leader in one arena is probably not a genius in a totally dissimilar field.

 

As I’ve written here, presidential elections rarely move equity markets much over time. Wars overseas too, unless you’re heavily invested in commodities— or defense contractors. Tariffs change things considerably for many companies and even for the economy, but they are unstable, usually imposed and dropped in a few years. Interest rates are cyclical. Some businesses do well with lower rates while others do well with higher ones, and when the cycle changes so, to some extent, do those businesses’ prospects. Some next big things are just momentary fashions (3D printing, ‘atheleisure’) while others can completely redefine the economy (online retail, artificial intelligence).

 

When I’m reading news, I’m looking for mentions of companies I own, of course. But also for news of their competitors, and news of their industries which could impact my businesses. I want to know that both the European Union and our current administration are serious tech watchdogs challenging monopolistic behavior. I want to know that social media reach continues to grow and is becoming our most dominant consumer advertising platform, and misinformation source. I’m looking for warming business trends that might have legs (computer and network security, big data analysis, luxury goods in China). I’m looking for what’s maybe not as hot (environmental social & governance investing, or ESG). I want to know what’s expected to happen in medical and bio-tech and real estate as the baby boomer generation reaches old age. And I want to know what teenagers are doing with their time and money, because they drive tomorrow’s consumer spending, which ultimately drives markets. I look for clues. I try to see around corners.

 

It's a lot of reading. I’m at this nearly full time, and I can’t begin to absorb it all. But even when I’m on vacation I check the headlines. I’m almost certainly a news junkie. But that makes me a better-informed individual, and that makes me a better investor.

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As always, tell me what you think. Send your thoughts and reactions here: robin@zagaco.com.