"Noise" versus News
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"Noise" versus News
Anyone interested in keeping up with current business events has plenty of opportunity. Walk into any newsstand, and you’ll see all kinds of newspapers and magazine titles dedicated to the business world. Cable television offers several business news channels. And the Internet provides countless business and financial Websites.
Things To Know
- The challenge is deciphering the stories to determine what is relevant for your stocks.
The news affects your stocks
Oftentimes, events in the news cause stock prices to move both up and down, sometimes dramatically. Sometimes the market’s reaction to the headlines is warranted; many other times, it’s not. For an investor, the real challenge is deciphering all of the headlines and stories to determine what is really relevant for your stocks.
Investors should consider how news affects their stocks
Astute investors practice the discipline of scouting out great companies with long-term competitive advantages that they expect will create shareholder value for the foreseeable future. Then they wait until their stocks become cheap before investing in them for the long haul. In keeping a watchful eye out for solid investment opportunities, they constantly monitor and evaluate the ever-changing business environment. As they digest the events that affect any given company, they continually ask themselves, "Does this information affect the long-term competitive advantages and resulting cash flow of this company? Does it change the stock’s long-term investing prospects?"
This is key to understanding the investment process. Periodically, news will break that does not affect a company’s long-term competitive advantages, but its stock price will fall anyway. This may lead to a buying opportunity. Remember, "Mr. Market" tends to be quite temperamental, and not always rightfully so.