There’s a lot of noise out there — don’t listen to it – Twin Cities

Market “noise” is any information that distorts underlying trends in the economy or financial markets. We’re seeing lots of it in the daily scrum of ads from financial companies and self-serving opinions from investment pundits.

Many market participants use noise rather than factual information to make trading decisions, relying on news trends, apparent surges or declines in prices or word of mouth rather than the hard work of analyzing companies. The problem with market noise — and why you should avoid it — is that it can make it difficult to determine what’s really driving a trend, if a trend is changing, or the market is merely experiencing short-term volatility. Generally, the shorter the time frame, the more difficult it is to separate meaningful market movements from distorting noise.

They’re called commercials for a reason

With stock market tickers scrolling constantly on cable TV, you need to think about how these channels are paid: by Wall Street firms that promote their services on those very same channels. Wall Street is geared to drive stock prices up, since not only do they benefit from selling those stocks but are paid to promote companies that pay them to issue those stocks. Wall Street wants the public to take actions that benefit Wall Street. It may or may not benefit the public at large.

What media should you treat with a healthy dose of skepticism?

• Shows that teach you HOW to invest yourself — These programs operate under a simple premise: make enough bets and you win. Or do you? Suspect programs typically promote such “get-rich” schemes as how to use other people’s money to buy real estate or such system-beaters as how to use puts, calls or options to boost returns. What they don’t tell you is how leverage and derivatives can work the other way, too. And while it’s possible that you can follow the stock and bond markets and make great investment decisions, and even may have fun doing it, you need to remember that there’s someone on the other side of every trade. Professional investors have access to deep research, specialized knowledge of industries, markets and geographies. They have reams of data to support their investment decisions, and the time and determination to develop and implement a strategy.

• Shows that tell you WHAT to invest in — The list is endless. Purported market specialists promise to show you — for a fee, of course —  the inside track on how to invest in the “hottest” asset classes, such as Bitcoin, foreclosed mortgages, non-fungible tokens (NFTs) or Icelandic certificates of deposit (CDs). They tout the benefit of making huge, concentrated bets in a single asset class, often promising outsized returns. Often, these recommendations come after the big money has already been made.

• Phone solicitations — Years ago, Bruce got a call from someone trying to sell him an initial public offering (IPO). He asked the caller how he knew this investment was good for him. The caller replied that it was “good for anybody…a ground floor opportunity.” Bruce told the caller that would be like him offering to sell 50 pound bags of dog food for a dime a bag. You’ll never see dog food this cheap again in your life. But what if you don’t own a dog? You would have absolutely no reason to buy the dog food. The point is, if you don’t know me, or my financial situation, how do you know this investment is right for me?

• Newsletters and websites — The financial media, which include social media, investment-oriented newsletters and websites, ratchet up anxiety by zeroing in on financial things that investors have zero control over, such as inflation, oil prices or interest rates. Or they focus on strategies that they say will exploit market bubbles and corrections. The problem with these unregulated channels is that they tend to work: One-third of Americans act on financial advice found on social media, and 32% say they trust social media influencers and celebrities’ financial advice. If such “sure-fire” strategies really were successful, why would promoters be out selling them? They’d be on the beach. Sensible investors know that making the right market calls is fiendishly difficult, and that time in the market is far more helpful than market timing.

Do what the rich and famous do

Fabulously successful investors’ situations are very different from the regular investors the noise-makers target. Great wealth comes from either having concentrated equity in a business (think Warren Buffett with Berkshire Hathaway or Bill Gates at Microsoft); phenomenal personal brands (Oprah, Jimmy Buffett, or Michael Jordan); or through inherited wealth. But none of these ultra-wealthy people became rich on their own! Most have had a team of advisers their entire careers to help them.

The rest of us mostly build our nest eggs through some combination of career earnings, a company-sponsored retirement plan and personal investments — and having a plan, knowing what to invest in and why. If you don’t have the time or inclination to do this work yourself, seek out a qualified financial adviser who can help prepare you for market downswings, seek new opportunities in the markets and, perhaps most of all, help you tune out the market noise.