Apprenticed Investor: Lose the News

Second, the vast majority of news is irrelevant to your investing.

Sure, the data points on occasion may be important, but the rest is essentially infotainment and filler. I find CNBC both informative and entertaining -- but it's not the basis of my investment decisions. This explains why there aren't any hedge funds running money on the basis of what's on TV.

Even with situations that involve binary events -- a yes/no FDA decision, a litigation outcome, an earnings report -- it's not the news coverage of these that matters so much as the actual data point.

Did the FDA approve a new drug or not? The subsequent reporting is irrelevant; it's the event that matters.

Quite often, it's not the news that matters, but the reaction to the news. Look at Intel's INTC midquarter update. It was good all around, but the stock has since slipped. That's because the improved environment, especially for laptops, was already well known. It was fully built into Intel shares.

When we consider events of even greater historical significance, we discover something rather astounding: Over the long haul, the markets ignore things like Pearl Harbor, JFK's assassination and even the Sept. 11 terrorist attacks. Gary B. Smith showed how after their initial response, the markets resume whatever their prior trend was.

Third, because news organizations often try to appeal to as many people as possible, they have a disconcerting tendency to catch various trends just as they are peaking.

Have a look at these charts provided by Neal Frankle, author of Why Smart People Lose a Fortune. They offer a compelling explanation as to why the mainstream media should not be the source of your investment strategy; in fact, they can often be a strong contrary indicator.

Source: Why Smart People Lose A Fortune, by Neal Frankle

Source: Why Smart People Lose A Fortune, by Neal Frankle

Source: Why Smart People Lose A Fortune, by Neal Frankle

Source: Why Smart People Lose A Fortune, by Neal Frankle