Tuesday , 25 October 2016

Turn Down the Financial Noise: “Do Less” and You’ll Probably “Make More” – Here’s Why

There are two ways in which “doing less” can happen in our investing lives.

  1. Eliminate (or radically reduce) the amount of financial media you consume and;
  2. Make fewer decisions (and automate them if you can).

The above edited excerpts (and the copy that follows) come from an article* by Tadas Viskanta (abnormalreturns.com) entitled Make more money by doing (and listening) less which can be read it its unedited version HERE.

On those themes I wrote in my book:

  1. “The financial media sells noise because it is exciting. The fact is that the principles of personal finance and investing are kind of boring.” – Chapter 11
  2. “Successful investing requires time, time that for many is better spent in other pursuits. Arranging our financial lives to minimize the number of decisions we make can make for better outcomes.” – Chapter 12

These themes fly in the face of what you commonly hear in the financial media where the general idea is to do more, more, more. Kent Thune writing at the Big Picture clearly states why consuming less financial media is a win-win. He writes:

Turn downing the noise enables us to become self-aware and recognize our external adversaries who, while providing our sources of information can cause us to become our own [worst] enemy. In addition, ask a number of reflective questions such as:

  • Where do most of your investing ideas come from?
  • Do you find your information or does it find you?
  • Do your sources of information exist to sell advertising?
  • Do they appear to thrive on inciting emotion or do they present information in a factual and unbiased manner?

If it is raw data that you need to make informed investing decisions, then find sources of information that produce few emotion-provoking headlines and speculative opinions to attract page views and listeners.

If consuming less media makes sense, then actually doing less makes sense as well. Robert Seawright at Above the Market wants us to do more thinking up front in terms of investment philosophy and less on actual execution. He writes:

Making fewer decisions can mean building an investment process that, in effect, makes the decisions for us. If we carefully and collaboratively build, monitor and continue to evaluate a process that gets us to the decision we need without having to make (potentially a lot of) active preliminary decisions at every step we can improve outcomes, often by a great deal so if you want to make better decisions, start by working out how you can make fewer of them.

The bottom line:

We are not as smart, or as unbiased, as we think. Outside influences, whether they be from the media, or next door, can greatly affect our decision making. However, if we take those decisions out of hands and automate them then we have both the luxury of time and the peace of mind we are not making questionable ad hoc decisions with our money.

* http://abnormalreturns.com/2015/06/10/make-more-money-by-doing-and-listening-less/

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