MICHEL PIREU: Cut to the chase amid constant barrage of good and bad news
Investors tend to overreact to unexpected negative news while acting slowly on positive sentiment
“The biggest intellectual problem an investor has to wrestle with is the constant barrage of noise and babble,” says Barton Biggs. “Noise is extraneous, short-term information that is random and basically irrelevant to investment decision-making. Babble is the chatter and opinions of the well-meaning, attractive talking heads who abound. The investor’s monumental task is to distil this overwhelming mass of information and opinion into knowledge and extract investment meaning from it.”
How the market reacts to news is a crucial question for investors. Being able to classify news as good or bad is of no use if the market has already priced in the sentiment. “If bad news is already embedded in prices, markets can be expected to continue to fall only if future news is worse than already expected,” says Larry Swedroe...
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