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Do you know why the Titanic sank? Considered to be an unsinkable ship, the mighty Titanic sank after hitting the tip of the iceberg.
But was it really the tip of the iceberg which sank it? No, the Titanic sank because of damage that came from below the surface, i.e., damage the crew failed to see.
While only 1% of the iceberg was visible on the surface of the ocean, 99% of the iceberg was invisible and lay beneath the water. Investing based on news is exactly like that. Often only 1% of it is visible and the rest 99% is not.
I often come across a lot of people who invest only on the basis of stock market news. And this makes them more traders, rather than investors who invest on the basis the fundamental strength of the company.
Don’t you agree?
In the business world there is a popular saying “Bad news is usually good news-for somebody else”. This is so true especially in the case of share market news.
Beware of deliberately fabricated stock market news
At times, fabricated stock market news is released through media by entities with vested interests because they want you to believe that news offer you some sort of a competitive advantage.
Some examples of fabricated stock market news
Often, we hear the news of a certain company buying stake in another company. Unless the news is really true, this may result in the price of the company’s stock prices going up temporarily and then coming down.
Let’s look at this with the help of few examples:
Example 1:
News: “Information technology giant ABC company may acquire 30% stake in XYZ company’’.
Impact: Shares of XYZ company will increase temporarily.
Later when ABC company issues a clarification that there is no such plan, share of XYZ company falls.
Example 2:
News: “Pharma giant DBC company very close to developing vaccine for Covid 19”
Impact: Again, the shares of DBC company are likely to rise as many will invest anticipating a rise in the company’s share price.
However, in the event of DBC company not being able develop the vaccine or failure at clinical trial stage may lead the investors to dump the stock.
From the above examples, it is quite clear that many a times, fabricated news is deliberately released with vested interests. Many fall for that and end up with the wrong investments and erosion of capital.
Investing based on stock market news can be dangerous for your financial health
A series of experiments by a psychologist named Paul Andreessen has revealed the perils of investing based on stock market news.
His experiments have shown that paying close attention to stock market news can cause investors to trade a lot and to earn lower returns than those who stay away from the news. According to him, the situation it is getting worse day by day since everyone has access to the share market news instantaneously with round the clock news.
Ignore share market news to become a successful investor
So, if you are investing for a long term, you should largely ignore the daily stock market news.
Why? Because that’s that successful investors do. The best example of this is none other than the legendry investor Warren Buffett, who prefers to remain far away from the commotion at Wall Street. Read more about how successful investors invest.
I am sure you know how overhyped the news are, these days. Besides, the stock market news that you come across is something which already occurred. This means markets would have already factored in the news to the stock price, so how is it going to benefit your investments?
If you want to become a successful investor, you can safely ignore the stock market news and stick to fundamental analysis-based investing because that is what gives you an idea of the company’s financial health and it’s potential to wealth create for you. To start investing in fundamentally sound stocks
Related investing topics
Read more: How Long-term investing helps create life-changing wealth – TOI.