What You Need to Know About Financial News

What You Need to Know About Financial News

Should financial news and media reports affect
the way you make your investment decisions? Recently, a client said: “I just read about
_________ (fill in Israeli company name) in The Jerusalem Post, and I’d like to buy
1000 shares.” I hear comments like this fairly often. Since I help people who live in Israel with
their U.S.-based IRA and brokerage accounts, I am able to help them trade stocks. However, before putting in an order, I recommend
that they ask a few questions before considering buying an investment. How accurate is the news? The media frequently misrepresents information. News reports are only as accurate as the journalist’s
orientation. Therefore, it may be reasonable to assume
you are not getting the complete story. Is the information fresh? Once “hot” news reaches the general media
outlets, it probably isn’t hot any longer. It might be warm at best. Some types of news items about long-term company
strategies might give you an indication of where the firm wants to focus its growth. Such reports (e.g., that the company wants
to enter the self-driving automobile market) may not have an immediate impact on its stock
price. However, if you believe in the future of the
product/company then it may be appropriate to invest. However, if short-term news breaks, for instance,
a drug company receives FDA approval, and you think the stock will shoot up in value
as a result of the new information, be aware that you’re possibly already too late for
the party. Does news make you a better investor? Studies have compared investors who have made
decisions with the input of news versus those who made decisions in a news vacuum. Interestingly, those folks who weren’t distracted
by the media hype outperformed their well-informed peers. I wrote about this, along with many other
behavioral finance facts, in Rich As A King: How the Wisdom of Chess Can Make You a Grandmaster
of Investing. Check it out, and sign up for the free articles
and podcast at www.RichAsAKing.com.

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About the Author: Oren Garnes

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