Financial Professionals

February 7th, 2017

Investor’s Worst Enemy: Too Much Information

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We live in the digital era. For investors, this means having the ability to consume an updated news story at every second of every day. Investors can also curate their consumption of news, by only choosing to follow or believe news stories that reinforce a certain point of view. In behavioral finance this is known as “confirmation bias,” and it can lead investors to make decisions based on emotion – instead of hard data.  And that’s problematic.

We also live in a time when financial news outlets prefer to focus on uncertainties and the potential for negative effects, versus the fundamental data that investors need to make informed decisions. When corporate and economic fundamentals are strong, it tends to get short-changed. For example, it was not widely reported that corporate earnings posted solid gains in Q3 with more expected from Q4 as well. The reason for this kind of selective reporting is simple: optimism doesn’t sell papers, negativity does.

Three Overblown News Stories from 2016

Last year was rife with negative news stories that many thought would break this bull market, but each one turned out to lack the power necessary to do so. Here are three:

Bottom Line of Investors

My advice to investors is simple: when you see a news story that feels alarming and that commentators say could have a big, negative impact, do not act immediately. Instead, ask more questions and read multiple news sources such as this one! Last year, I wrote about China fears, Brexit, and Deutsche Bank, and in each case I discussed the positives and negatives and made the argument that stocks could withstand the negatives. I persisted throughout the year in saying that I believed stocks had more upside ahead – not because I’m an eternal optimist, but because the data supported my view. And that’s what matters at the end of the day.

 

Disclosure

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.

This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. The information contained herein has been obtained from sources believed to be reliable but we do not guarantee accuracy or completeness. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.
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