We are bombarded by information from all sources. Scientists estimate the brain can handle three terabytes (3TB) of data. That sounds like a lot, but IBM estimates that it composes only 1/1,000,000 (one millionth) of the data produced daily. We can’t possibly process it all, which is why it is imperative we are selective of the data we use and disregard the detrimental data we are exposed to.
The Financial Media
We like to tune into the financial media to be informed. But oftentimes the data they provide focuses on the news story of the day, the performance of the day and serves to get us emotionally charged. All short term in nature. This is especially powerful when we experience a negative performance, as we have recently.
Why does negative performance influence us so much? Why does it make us want to sell?
Warren Buffett reminds us that, as investors, we should want prices to go lower. That allows us to buy securities at a lower price and reinvest dividends at lower prices – which is ultimately to our gain. Since market losses have been temporary in nature, disciplined investors can take advantage of this.
The Right Perspective
Having the right perspective is essential to making good investment decisions. Sure, we may have days or months of poor performance. We will have recessions and the market is fraught with uncertainty. But these are moments in time and simply the nature of the markets. While we may not be able to predict every move or “crisis”, we know they will occur and account for them in our planning and portfolio construction.
Just because there is information available doesn’t mean it is good for you. This is especially true for the financial media whose primary goal is to get you to tune in – not to help you to make wise financial decisions. That’s my job. I will guide you along the way and ensure you consider information that is helpful for making good decisions.
©2020 The Behavioral Finance Network. Used with permission.
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