Second Hand News and Predictions
Predictions are hard to do, especially about the future. (Sidebar: Origins of this quote – you may be surprised). Yet, people seem to believe that they, or somebody, are able to predict what is going to happen next.
What is going to happen next? If the news says this, then that? And how do the prices of investments react to the news?
People don’t see that investment prices already reflect everyone’s (those buying and selling) predictions and the markets simply average those predictions. And it gets more complicated thinking that sellers sell because they simply think bad is going to happen; or, the opposite for the buyers. There are a lot more reasons to buy, or sell than news events … they may simply need the money now (sellers), or don’t need it now (buyers).
News itself is unpredictable. And when unexpected events happen, the people react based more on their emotions to the unexpected news event, rather than looking at the longer term (I define as the rest of your life) and bigger picture (what and when is your purpose for the money in the first place – which rarely has anything to do with recent news events).
There’s an easier way. “… instead of trying to second-guess the market by predicting news, investors can use the information already reflected in prices to build diverse portfolios based on the dimensions that drive higher expected returns.”