News Never Matters Until It Doesn’t

 

If you would prefer the video format, you can find it here.

News Never Matters Until it Doesn’t…

Whenever you find a principle that has held up to the test of time for 30, 40, or 50 years, it may be a principle that you can start to follow.

When you find a principle that has held up against the test of times over the last two hundred years– that is the type of principle that I am interested in.

The Pareto Principle has held up over centuries.  Most of you may not know what the Pareto Principle is by the official name, but you might know it as the “80/20” rule.

It means that most things are trivial–80% of what you are doing is trivial, while only 20% of what you do is vital.

So, the game/art/science is to figure out which 20% really matters.  The ratio does not really need to be 80/20, but what you really want to hear and notice is that there is an imbalance between what is vital and what is trivial.

And fairness never plays a part.

If you have one hundred units of energy, each one of those units is not going to give back the same result.

In fact, eighty of those units will probably be fairly worthless, and twenty of those units will likely respond or bring back a lot.

This means that most people who are doing things to grow their money, spend 80% of their time in the camp of uselessness.

Investment news falls into the 80% worthless category. It’s trivial and not vital data.

 

042713Image1.jpg


When I purchase a stock for my money management clients, or add a stock to the Fearless Wealth model portfolios, I never look to the news. Never.

I do not watch the news, follow it, or read articles on companies.  It does not help and I will tell you why it doesn’t.

The price chart of Intel below will assist in the demonstration.

 

042713Image2.jpg


The vertical line from top to bottom is December 6, 2012.

That is when I added Intel to Fearless Wealth’s Obvious Trend Strategy.  Before that vertical line, you can see all of the way to April 2012.  That is about eight months of Intel falling 40%.

I did not need to follow the news, because guess what happens when the price falls?  News follows price.

If the price goes up, guess what all the newsy people are going to do? 

They are normally going to find a reason or a piece of information that can explain why the price went up…and the news will be positive.

That is why you do not need to watch, read, or listen to the news.  That is the part of the investment world that is a complete waste of time.

News falls into that 80% of trivial information.  I think with news, instead of the ratio being 80/20, it is more like the 98/2 principle.

98% of news is completely worthless. 

Yes, that is actually how trivial news is…almost, but not completely, worthless.  News follows price.  If you want to write something down this week, write down: “News Follows Price.”

Then, help yourself and stop watching/reading/consuming news.

But wait, I’m not done.  There is one point in time when news does matter; it’s that 2% of the time.

Let me describe when…


042713Image3.jpg

News Never Matters Until it Doesn’t.  I want to explain to you when the news somewhat matters.

I’ll demonstrate this with the price chart of Netflix below.

042713Image4.jpg

 

In mid-2011, Netflix was at about 300.  Then, it fell 82% to the middle of 2012.

You would have thought that Netflix was headed towards an Enron situation.  The idea that companies are getting “Enroned” is way over-publicized.  Most actually, do not.  Again, it is news making things worse.

In this case, “News Doesn’t Matter Until it Doesn’t”.  At the lowest point for Netflix, it was all bad news, all the time. But, something changed – and this is the point I want to make – even though the news was bad, the price started going up.

In this case (2% of the time), news didn’t follow price. News attempts to lead price, and when this happens, something significant has changed.  

The second thing that I want you to take away this week is, when bad news can’t push the price of a stock down, it means that everything that is bad about the stock, is already priced into the stock.

The probability of the stock falling even more, has just dropped precipitously.  This is the only time when I somewhat listen to the news.

When bad news cannot push down a stock any more, it means that there is only one way left for it to go.

And, when good news can no longer push the stock up, there is only one direction left for the stock.

This happened to Apple last year.  No matter what the good news was for Apple, after the stock hit $700, it could not go up any more. 

———–

Thanks so much for being here with me today.  Of course, the May Monthly Strategy Gathering is coming up on May 14th.

We will cover:

The Markets – With Japan and the U.S. printing $170 billion a month, how are the markets reacting and what can we expect for the rest of the year?

Speed Investing – I will, in front of you, deconstruct any investment, any ticker symbol.  The key thing for you to take away, is to hear how I am thinking, how I look at investments, and how I manage my wrongness; how I price out my wrongness.  Notice how this compares to how you analyze an investment or a ticker symbol. 

LIVE, Extensive Q&A – There is nothing like being able to personally ask your own questions.

Update of Strategies – We will look at any changes, adjustments and expectations going forward.

Market X-Ray – What do the inside workings of the market look like, and how can we position our money?

Together, we are growing and protecting your wealth,

RCPeck-Dig Signature.JPG

Editor’s Note: My team and I have spent the last decade, and nearly $1 million, designing an overall system to take the human error out of investing…and help you beat the market over the long-term.  It’s simply called The Fearless Wealth System.  Large hedge funds spend millions of dollars for these kinds of results. Click here to learn more about how regular investors are using it to profit right now.

0 Comments