News ≠ Investment Strategy

Amar Pandit , CFA , CFP

I received many responses to my post “The Prasads of the 21st Century”. Thankfully all of them appreciated it and a few Prasads also took it sportingly. Today, I wanted to quickly share something that you already know but it nevertheless ends up taking our headspace sometimes. Just because we know something does not mean we are not affected by it. After all, we are all human. The something in question is called News. Whether we like it or not, we are all impacted by news.

We live in a world of 24*7 News cycles and there will always be too much news to consume. Something bad is happening somewhere all the time. This is amazing fodder for our amygdala or the fear centre of our brain. A lot of it is click bait designed to get your attention. Like it or not, the reality is that our emotional response to News around us gets many to wait for a correction or for the elusive right time. Yuval Noah Harari had said this gem “In ancient times, power meant having data or information; Today power means knowing what to ignore.

If I translate this in the context of investing, here is how it will look like. In ancient times, knowing that a lion was outside our cave was important for our survival. Today, we are constantly bombarded with information of millions of lions outside our mental caves. It feels like the moment we do something we will be eaten. It is like the moment we invest, something bad will happen. And mind you something bad always happens after you invest any day, week, month, or year. So, many end up waiting endlessly till they cannot anymore because of FOMO (Fear of Missing Out). Someone or the other is always shouting “Lion, Lion and Lion. You will be eaten.” Thus, instead of investing and letting compounding work, investors end up doing things such as waiting or trying to time the markets.

A couple of weeks ago, there was this piece of news in a prominent newsletter to millennials and young investors. The writer wrote about the drop in US retail sales last month. He said that the drop was – 1.1% versus -0.3% decline that Dow Jones expected. There was a lot of noise around this piece of News, and it was dissected to a different level. The market even corrected for a day or two for this and other reasons such as the delta variant creating havoc.

While this was happening, I was looking at a very different reality in the US.

  1. Some of the most hard-hit sectors of 2020 were airlines, hotels, and restaurants. Most of the hotels in Boston that I was looking at were packed with travellers. An 860-room hotel is packed till February 2021 with not a single room available. By the way, this data is limited to my observations and conversations with people in a city.
  2. I have been experimenting with a lot of restaurants in Boston the last couple of weeks. Almost all of the restaurants are packed throughout the day with waiting times of at least 20 minutes. The waiting time at one restaurant was 1 hour 30 minutes. Another restaurant just opposite this one had a waiting time of 45 minutes. We had to book in advance for a table at many restaurants. While many of the smaller restaurants have been out of business, there are many who are doing far better than before.
  3. In July 2021, air travel exceeded pre pandemic levels for the first time in the US.
  4. There was a state sales tax free weekend on August 14th and 15th in Boston and the State of Massachusetts. The savings was around 6% but people were shopping as if it was 60%. The wait time at an Apple Store was around 3-4 hours (No new product was being launched). People were queuing around all kinds of shops right from regular clothing shops to high end luxury shops. The scene outside a Rolex Store was very funny but I will share that in a future Nano.
  5. Even Gyms were packed, and people were working out in crazy numbers.
  6. I am not even getting into the performance of tech businesses and many industries that have been doing very well since the pandemic.

The point that I am making is that people are consuming. Retail Sales dipping by – 1.1% instead of -0.3% should not affect our long- term investment strategy. In fact, it simply does not matter. Yet it is made as if it is the holy grail of investing or some secret sauce. The only secret sauce is Time and Compounding. The secret sauce that should matter to you is whether you are invested and whether you are letting Compounding do its job.

COVID-19 will not just disappear one fine day. There will be different mutations and variants. Likewise, as we have seen, the world will not end either.

The news cycle will continue as there will be enough material all the time to get people’s attention.

Your investing superpower will come from rejecting all the noise (and people spreading this – sorry Prasad) around you and doing what you should indeed be doing – investing and not trying to second guess the markets and your real financial professional.