Financial News Headlines Undermine Investing Patience

As-seen-in

 

A case study in just how easily the media’s headline predictions and warnings can mislead is attached in the essay below. In this essay, Weston Wellington reveals the difficulty of achieving superior investment performance by connecting the economic and financial news dots from 2014.

In an above-average, Lake Wobegon world, financial news would give us a leg up. The reality is that most of what passes for news has been anticipated or acted upon by a lightning-fast trader. This “news” offers no advantage. Better to think like Warren Buffett: have a strategy and exercise patience in executing it. A few pithy Buffett quotes illustrate the idea:

chavez1Parallel to the fascinating economic landscape of Venezuela are physical beauty, friendly people, and delicious food. However, State Department travel warnings about the prevalence of kidnappings and violent crime gave us second thoughts prior to our departure.

Even though our itinerary concentrated mostly on remote, untraveled areas of the Andes and avoided Caracas, reactions from my wife’s colleagues—particularly those from Latin America—not only gave us pause but precipitated a phone call to our tour operator about the trip’s safety. She assured us that she had seen no problems in twenty years of running trips and that we were in good hands with our experienced guide and our veteran driver. The risks seemed minimal.

Venezuela Oil

After crossing into Venezuela from the Colombian border town of Cúcuta on our recent vacation, we proceeded to a lodge an hour away. The stream of evening car headlights coming toward us on the two-lane road numbered in the hundreds. Why so many on a Saturday night?

I soon discovered that much of the traffic consisted of gas smugglers. The subsidized price of gas in Venezuela works out to 4.3 cents per gallon at the official exchange rate, the lowest in the world.

You want to diversify. But how? Harry Markowitz won a Nobel Prize in economics for solving this problem. But when Markowitz made his own investments for his retirement, he did not use his Nobel Prize-winning method. Instead, he employed a simple rule of thumb called 1/N: Allocate your money equally to each of N funds.” – Risk Savvy: How to Make Good Decisions, Gerd Gigerenzer

 

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