I have been roaming around Eastern Europe for nearly two weeks without a consistent Internet connection [1] – and with an aversion to paying scandalous any data roaming charges for my iPhone.
This meant that I only caught snippets about the Dubai World debt suspension [2] story that spooked the stock markets.
That’s the bad news. But it’s not really bad news because it just meant I missed:
- A stock market wobble
- Hundreds of thousands of words of speculation, written by journalists and bloggers salivating that the crash was back on (they miss the meltdown [3])
- The predictions of doom splashed across the Sunday papers – with icons of the Earth in the shape of a bomb with a skyscraper in Dubai for a fuse.
- Any response mumbled by Gordon Brown.
In fact, I only caught the tail-end: the recovery. Party time!
My portfolio didn’t miss out, of course. It went down, and then up, regardless of whether I paid any attention or not.
In fact, I was forced to do what is actually a wise course for many investors to do most of the time – ignore my portfolio despite the scare stories:
As I wrote in a guest post on the Investing School [4] blog:
Most of us hold our investments for the long-term, yet we monitor their performance regularly over short periods of time, exposing ourselves to inevitable anguish.
Over 40 years of our investing for retirement, history suggests investors in stocks will do very well. Over a month, let alone a day, almost anything can happen.
So why worry too much along the way? If you’re not a stock market junkie, don’t become one.
Good advice that I stand by for most people, but advice that’s very hard to follow if you’re an investing blogger, let alone one who treats the market like most men read the sports pages.
(Or unless you’re Mike [5], but he already has the field covered…)
Don’t just do something! Stand there!
Most of the time, private investors are best off sticking to their plans and ignoring this sort of news panic.
The best reason: we’re last to hear about it.
I have a friend in the City who has been working on debt in the UAE for over a year. He has several dozen friends in the City who all have friends in the City.
This is even leaving aside the fact that tens of thousands of people are watching that debt all day long, full-time – I’m just talking about his one social network.
I’m not saying they will all get the right information, or that they will profit from it. Just that we heard about it last from sensationalist writers who are all sick to death about being wrong about the stock market rally [6] and are praying for a crash.
- If you’re a truly passive investor, ignore the market’s tantrums, keep up your monthly investments averaging-in, and get ready for Christmas.
- If you’re a stock picker, it’ll almost certainly be too late to sell when you hear this sort of news.
It might make more sense to buy, in fact – I’ve written before on crisis investing [7], in response to the now clearly hysterical panic over swine flu.
The Dubai situation is similarly of the specific news variety of crisis [8].
In my humble opinion, such vague developments are very hard for us to profit from, as opposed to company blunders [9].
A company cock-up is hard to profit from too, of course – the market is generally pretty efficient – but you can at least try to work out the financial damage to the company and compare it to the impact of the blunder on the share price.
With crisis news stories, almost anything can happen.
You will hear about hedge funds and traders who do make money from such events, but everyone calls heads 50% of the time. You have to get it right more often than wrong to make money.
- Anyone who shorted the market last Friday had paid a heavy price by today.
- Equally, anyone who buys now may regret it if contagion does spread.
Too hard. Ignore it, I say.
In fact, I’ve just come up with a new motto: “When it doubt, shut it out.”