You wake up, roll over and grab your phone. You check it. You look at notifications, messages, social media, etc. You may even find yourself, consciously or otherwise, wanting to know what’s going on in the world. You may find your thumb performing the movements required to open some type of news-based app. You check the news. No disasters. Business section: nothing notable.
8:34am – pre-work phone check.
As you log on to work you check the top stories again. You must stay informed – what if there is some kind of small-talk-informing story?!
11:47am – work break phone check. You deserve it.
At lunch, browse the news. Again. You might have missed something.
Beyond around 3pm the checks start to become longer and more frequent. Near the end of the day, when productivity drops to around 10%, you browse the news again.
After work you may peruse youtube or reddit or twitter. Your eyes, your attention, your body – somehow – are/is drawn to the news sections of these sites. Somehow. And they all have news sections, somehow. For some reason.
Before bed, you run the little check phone routine again. Must. Stay. Informed.
Net net net
Now when I ask you how much time you spend checking the news, I’m guessing your response would be somewhere in the range 5-10 minutes.
Most people would acknowledge that they check the news probably a little too much but have no idea of the actual extent of the semi-addiction. But most think that’s sort of ok – citing the vague requirement to “stay informed” and the value that being up-to-date brings. Financially, professionally, and otherwise.
What most people don’t understand is the futility of this routine, and even the harm it can cause.
Think about it – what actual, material, fucking real benefit has being familiar with current events actually brought to your life. My guess is not a lot. If any.
In fact, my guess is that it’s been a net negative.
But sorry, we’re getting a little ahead of ourselves. Sorry – I get too excited sometimes.
When assessing the returns of any activity, one must also consider the required investment to generate these returns. One must consider the return on investment (ROI) to properly contextualise the returns.
Even ignoring the costs of news-checking for now, just on an ROI basis, the trade – your trade of time for money, that is – doesn’t make sense. Let’s say total time spent checking the news per day was 30 minutes (I’m underestimating) and you earn £10 an hour (I’m underestimating). This means that you’re spending the equivalent of [5x7x52=1820] £1,820 on news consumption every year. Time-wise. Let’s say your net worth is £30K (I’m overestimating); for this trade to be “worth it” your news-consumption must increase returns by 7 percentage points. In a world where interest rates are less than 1%. Good luck.
One of the reasons why the mathematics imply this trade most likely does not make financial sense is that the news is unfiltered, for our portfolio-allocation purposes. What effect does a story about Meghan Markle’s left fourth toe being slightly shorter than it should be have on the mix of assets in one’s pension pot? Not much. This means that we have to spend a huuuge amount of time filtering. Hence the large time investment, hence the high time cost, hence the high required ROI, hence the news-not-being-worth-it schtick.
And this is ignoring other costs. Important costs.
Think of the cognitive load. Every second you spend consuming news, thinking about current events, small-talking about the latest story, you could have been reading/thinking/talking about something else. Not only is there opportunity cost but there is mental cost, too. We only have a limited amount of mental capacity and spending some of it on news-related things means less is available for thinking of new instagram captions and other highly-important activities. Sad.
The news is also ~always bad news. This comes with emotional costs. Sad again. Literally.
Actual worse performance
But it actually gets worse. It’s not just that the ROI is low. It’s probably negative.
Firstly, there is the overconfidence that increased information induces. This is something I have written about before:
…this increase in knowledge can lead to worse returns. Higher confidence in decisions leads to over-exposure in positions. It also typically results in over-trading with the resulting costs harming returns. It may be the case that returns are actually concave to information.www.perpetualprudence.com
Information for retail investors leads to overconfidence, over-exposure, and over-trading, which lead to under-performance.
Second is the mistakes that arise as a result of crowd behaviour: FOMO + FUD. We have already discussed how these influence financial bubbles: we are social creatures who constantly feel an evolutionary pull to behave as other members of the community. News consumption increases one’s awareness of the behaviour of the herd and hence the pull one feels to act as the herd acts. This is one of the reasons why passive tends to out-perform: psychological advantage: if you buy and sell in a robotic manner, actions and opinions of humans won’t influence your decisions.
The long game
Another advantage of passive is the usually-long timeline that investors have. News is not compatible with this long-term view. It’s likely to be detrimental, in fact.
Those who could sell every day probably feel as if they should perform some type of monitoring of global events. To assess whether they should sell. Or not. These people tend to be obsessed with news.
But their problem is that stories have not been filtered via time. One simply doesn’t know what’s relevant or important a priori – news is subject to the Lindy effect – the longer an event has been relevant and talked-about for, the longer its expected talked-about lifetime is. Hannibal crossing the Alps, the discovery of the Americas, Apollo 11 landing on the moon are all still relevant and talked-about today. I’m not confident I can say the same thing about yesterday’s top story.
“Hey, yes, Haydn, but Haydn, remember that time when I saw the news about event X and so sold Y and so prevented me myself and I from being negatively affected by the downward movement in the price of Y?”
This sentence is so full of selective memory and mistaking noise for signal and mistaking luck for skill and other psychological and logical defects that I don’t need to explain why the person uttering this sentence probably has the mental clarity of a retired boxer and the humility of Cristiano “CR7” Ronaldo.
I invite those who retort with similar sentences to do the following:
Set up 2 fake portfolios on a website that allows you to do so. One of these portfolios will be informed by your opinions of what assets will offer the best return based on information and the other you can choose at random. Pick a time period. See which portfolio performs best. Repeat.
In here lies a potential antidote to news-obsession.