Investors spend too much time following the news instead of analysing businesses.
Don’t forget that the media exists to generate attention, clicks, and advertising revenues.
The media do not care if you lose money after panic selling or euphoric buying.
All the news does is ring alarm bells about the economy, oil prices, the Iran War, and market volatility.
This is why investors must ignore short-term market news and focus more on the fundamental analysis of businesses.
Long-term investors value a stock based on the present value of expected future cash flow. If markets operated strictly on such assumptions, stock prices would only move when the actual long-term cash flow expectations of the company changed.
Yet, stock prices swing wildly from day to day and month to month, while the actual cash generated by the businesses remains unchanged.
When investors look at financial news daily, they experience an overwhelming urge to do something. People just can’t sit around and do nothing. So they sell their stocks during the Iran War sell-off or buy $SpaceX(SPCX)$ at 200x sales. Well, many stocks that sold off after the Iran War began have recovered, while SpaceX fell by over 40% from its post-IPO peak.
The news blasts narratives that cause investors to panic, and then they sell or buy when they should just do nothing.
Instead, spend time learning about company fundamentals!
Read financial statements, go through earnings presentations, listen to an earnings call, analyse industry trends, read a Substack deep-dive, and create your own valuation model.
Simply put, spend more time analysing your investments, instead of listening to the news.
In the long term, stock returns are driven by earnings growth, not by what Jim Cramer said yesterday.
When markets keep you watching, knowing when to switch off matters too.
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