You can read the news until your eyes turn red, but are you getting the information you need to make good investment decisions? If you’re not sure, this article is for you.
You need to find out more about investing, so you google “investing” and you get 315,000,000 hits. Where do you begin? You can’t read it all so what do you bother reading? How do you differentiate between fact and sensationalism? What facts are you looking for? Let me answer some of your questions and help you nav reading the news to make investment decisions.
Where to begin
News is about the past, and you’re looking to predict the future. For that (and most things, let’s be honest), you will need critical thinking. Start by creating a framework for your decisions so you aren’t overly influenced by what you read. Your framework should include what kind of information you are looking for, and what data you are going to use to influence your decisions. Are you looking to predict future earnings of a company? Ask yourself what factors you should research to determine whether or not they will be as estimated by analysts. Some suggested topics investors look for (among others) are: industry trends, leadership decisions and HR changes, earnings statements, and any regulations that might impact an industry or company.
For example, if you are researching Ford and General Motors, you may feel like TV media has overstated the effect of the new Chinese tariffs on American cars. Further research (actual statistics based on import export data) may then cause you to judge it to have less effect than expected on companies shipping vehicles to China.
In other words, your framework should cover the situations you feel will affect the company earnings, but it’s up to you to judge whether the data are valid and media uproar is valid. Many investors who don’t do their homework will react strongly to media hubbub. But it’s always good to do your own research and be skeptical of big media reactions. (Remember they are in the business of selling things too: the news).
What to read
In today’s age, you have access to journals, white papers, business magazines, and newspapers at the click of a button, but, since you can’t read it all, what should you read? Unfortunately there’s no right answer, but there are a few things to look for in a good news article. Reputable sources, such as the Wall Street Journal, Barron’s, or the Washington Post are good ones to pay attention to, but there are also many well-researched and well-written blogs and websites such as EconomPicData and Contrarian Edge. Pick a few favorites to get started with and change it up with time.
Always check the data sources and ensure you double-check that the data supports the findings in the article. An article may site Tesla’s skyrocketing revenue and rave about the the company’s promising future, and how they are a definite “buy” but the writer may have conveniently left out that the company is operating at a huge loss (something the financials clearly show). The only thing definite thing about Tesla right now is Elon Musk’s ability to spend more than he earns.
Try to avoid writers who spew partisan politics. Far right or far left wing news sources tend to twist the data to support their political views (think Breitbart). You’ll end up spending too much time sorting fact from political agenda. #fakenews
Look for consensus
Don’t take anything at face value. Understand what the consensus is and the reasons behind it before you bet with it or against it. For example, many websites such as Yahoo show the consensus predicted earnings along with the stock price, dividends, and other information. Do further research to learn why the predicted earnings are what they are and see if you agree.
Do as Darwin did…
Seek disagreement. Berkshire Hathaway’s (NYSE: BRK.A) vice-chairman Charlie Munger is an advocate of Charles Darwin’s strategy of trying to disprove his own theories. He did this because we have mental and emotional biases that cause us to make poor decisions. Check out this article that explores our subconscious mind to find out more about some of our mental hangups and how to work through them.
Bottom line: You better think!
Most news is focused on past events. News archives history and historical information has already been incorporated into the stock price. To get ahead of the curve, you will need to think critically about what you read and determine whether the market price or earnings predictions are correct. Don’t be discouraged if you aren’t spot on. No one gets these right all the time–not even experts who are paid to do this–but keeping yourself informed and thinking critically about what you read will help unleash the investing badass within you.
Now that you know how to form sound investment decisions, it’s time to get started with: