How much should you pay attention to news when investing?
Not much
This might be a real hot take. But based on our experience, perhaps it is wise for us to spend close to 0 hours, looking at the news especially for the purposes of investing. Let alone, making it entirely be the basis of our investment decisions.
News’ Business Model
Business model of a news media is complicated in practice but rather simple in theory. To simplify, the goal of a news media as a business is to get as much readership as possible. Common methods to achieve huge readership is as follows:
Present attention worthy facts
Create a clickbait
Sensationalise
Now we think that these are the basic techniques to get more people engaged. Based on the traffic, the news will then collect fees that are obtained from advertisements.
News Worthy Facts
Based on the business model, news agency naturally favours facts that are news worthy over facts that are just meh. Why? Because creating news coverage incurs cost. The potential revenue obtained from a piece or pieces of news should outweigh the cost. News worthy facts most likely will do the job.
Public Company Facts (Events) are usually News Worthy Facts
Public companies are usually of a certain size that is noticeable amongst wider public. Furthermore, public companies are partially owned by the public. So shareholders of such companies would like to be informed by news agencies when sizeable events occur. As such, events that happen to them, whether good or bad, are usually news worthy facts. For example:
A giant instant noodle company issues dividend
HQ of a cigarette company gets clammed down by local police
These facts are usually presented as is, and out of context of the business of the company as a whole. As such it might cause us to have an incomplete and usually false judgement of a company. The good or the bad of that news to the company always requires further reading.
For example, the instant noodle company might issue dividends and that might sound like a really good thing. If we read this piece of news alone we might figure that “hey, I want to get a piece of this dividend”. However when we check the valuation of the company and compare it against its intrinsic value, we might come to the conclusion that at current prices, the stock is already quite pricey including the dividend payout.
Another example is that the cigarette company might be non-operational because its office is clammed down. However, the manufacturing, distribution and employees are still working uninterruptedly and the business is still going. So it might not be a good idea to sell the stocks based on this piece of news alone especially when their earnings outlook is still on track.
What are we trying to say?
News present facts that is usually only a minute description of the company. Sizeable events can easily get taken out of context (business wise) and make us have an irrational expectations or fear.
What we think is wise is to be aware of the news (this takes close to 0 hours) and then go to the primary source as much as you can (company statement, financial statement, etc). Then you will be ready to determine whether this new information invalidates your investment thesis or not. If it does, then take action, otherwise be patient for your investment thesis to play out. Don’t worry too much about the news 🙂