Summary: Use the financial media to develop a long-term view of the economy. Ignore the ups and downs of individual firms and focus on learning about the underlying factors that drive the economy.
The financial media, including newspapers, magazines, television, and the Internet, deliver an incredible volume of information on companies, securities markets, and investing. Unfortunately, the media delivers a tremendous amount noise, which can overwhelm any true understanding or knowledge that the media might also deliver.
One of the messages of scientific investing is that individual investors should fully diversify through index fund vehicles and leave securities portfolio management to index fund professionals. Doing this can be very liberating. Once you get out of the futile game of trying to beat-the-market by buying and selling individual securities, then you can largely ignore the ups and downs of individual companies. You will no longer have to spend your valuable time researching companies you think could be superior investments.
To the degree that you are actually interested and want to spend the time, you can instead read and listen to the financial media from a different viewpoint. You can focus on developing a more objective understanding of domestic and global economic affairs. Observing the economy and financial markets over time may help you to develop an historical perspective that so many investors seem to lack.
You might ask yourself, “What is the point about trying to understand the economy better, if economists themselves can never seem to agree?” The Skilled Investor thinks that you should pay attention, because an ignorance of the economy and its historical cycles is not bliss. Because business cycles are not predictable, you should not pay attention so that you might attempt to beat-the-market by timing its cycles. Instead, The Skilled Investor believes that a longer perspective on economic history will provide evidence that you should not change a broadly diversified investment strategy simply because of business cycles.
The more you pay attention and the longer you live, the more you will begin to understand patterns of economic change and repetition. Instead of actively altering your investment strategies, when economic winds seem to change, you may better understand the value of consistency.
Such an understanding can give you greater appreciation for and confidence in holding to a set of rationally based “all-weather” investment principles throughout your life. In reality, slow and steady is the best way for hard-working young people to turn into affluent older people. The tortoise and the hare, instead of the frenetic financial media, have a lot to teach about investing.
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