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How to Avoid Stock Market Distractions

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Research Analyst
Research, Cincinnati

 

Each spring while I lived in Chicago, I made a trip to Wrigley Field when my hometown team, the Cincinnati Reds, came to play the Cubs.

If you haven’t been to an early season game at Wrigley, picture sitting in a freezer for three hours. Then add in some wind, and you wouldn’t be far off from the experience. 

Before the recent stadium renovations at Wrigley, the baseball game was the only thing to keep your attention off losing feeling in your feet and hands. No mascot races, no cheerleaders shooting cheap shirts out of a cannon, and no “kiss cams.”  

I loved it.

Sadly, modern ballparks increasingly feature distractions from the actual game. They’ve become amusement parks where there also happens to be people playing a baseball game.

Frankly, this is not too far off what’s happened in the investing world.

Look over here

With access to real-time quotes and 24/7 financial media coverage, it’s easier than ever to get caught up in the stock market circus and its obsession with short-term price movements and lose sight of what matters.

The stock market is a tool that enables you to buy or sell stocks. Nothing more, nothing less.

The real business of investing is taking small ownership stakes in a portfolio of companies with an aim to increase your money’s real (after inflation) purchasing power over long periods of time.

The dangerous part of the modern stock market distractions is that they can influence short-term trading and speculation, which is at odds with real investing.

Many online brokerage platforms, for example, have as a default setting real-time quotes with flashing green and red fonts. The idea is to get you to take action – any action – which will generate commission dollars for the firm. Great for the broker, bad for you.

Similarly, the financial media often creates false senses of urgency with flash graphics and eight panelists on split screens to get you to stay on their channel or website. All of this is to generate advertising dollars for the company. Great for the TV station, bad for you.

What you can do

As an investor, merely recognizing these distractions as entertainment rather than information is step one to limiting their negative influence.

Here are some additional steps you can take to get your focus back onto real investing.

  1. Turn off real-time quotes and portfolio values on your brokerage website.
  2. Go to the source of information (company press releases, SEC filings) first and form your opinions before considering someone else’s interpretation.
  3. Consult an advisor when you’re influenced by something you read or saw on TV.
  4. Rather than check prices every day, set up alerts through your brokerage website to let you know when a stock you want to buy looks attractively priced.
  5. With earnings reports, focus on the company’s fundamental progress (e.g. free cash flow, return on equity, dividend growth, etc.) before checking the market’s price reaction to the results.

All of this is easier said than done, of course. The market and the distractions around it are hard to ignore, but it’s necessary to put them in their place if we hope to achieve our long-term goals.

Stay patient, stay focused.

Best,

Todd 

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Disclaimer

Todd Wenning is a Research Analyst with Johnson Investment Counsel (“Johnson”). 

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