I'm Barry Ridholtz, and on today's edition of At the Money, we're gonna discuss noise. Not just any noise, but the kind of noise that distracts investors. Earnings reports, news releases, upgrades, downgrades, economic data, geopolitics. They can be a confusing swirl for long term investors. How best to manage this fire hose of distractions. To help us unpack this and what it
means for your portfolio, Let's bring in Larry Squedrow. He's head of financial and economic research at Buckingham Strategic Wealth. The firm manages or advises on over seventy billion dollars in client assets, and Larry has written or co written twenty books on investing. So let's start with our first Masters and Business interview we did years ago. You kind of stunned me by saying all of those news items are meaningless to long term investors.
Explain, Barry, the problem that investors failed to understand is that the market knows everything you know, and the minute news comes out, the market instantly adjusts to that new information, which is what is moving prices, and by the time you react, it's already too late.
And you should therefore ignore the noise.
A great example of that is let's say a company is.
Trading at sixty. This is a real example, and.
The earning announcement comes out after the market stock earnings were up one hundred percent. Now a lot of as would jump on that and say, gee, you what a great earnings number.
We would own it.
First price. The next price it traded at was like forty. Why because the market was expecting more than one hundred percent earnings, uh, and therefore it was disappointed. So the news itself is not relevant. News doesn't matter if it's good or bad. That's what investors make a mistake. All that matters if it's better or worse than the market already expected. And if that's true, then the market moves and now it adjusts, and again it's too late to act. So you just want to have a plan that's well
thought out and sit there. Give you one other great example from my book General Motives and the Great Recession. Announced earnings were down twenty percent, and investors would think the stock should crash. Clearly, down twenty percent is a bad earnings number. In fact, the stock row because the news, while bad, was not as bad as expected.
The price went up.
And adjusted to that new information immediately. Research has sewn something like ninety five percent of the move occurs literally in the first price, which today takes seconds.
It's that long, and then the move is over.
You can see that anytime we get an economic news, the ten year bond moves let's say five or six basis points, and then it tends to sit there the rest of the day.
So let's talk about economic news, because it's not just the biggest ones like GDP every month which comes GDP comes out quarterly, but every month we get non farm payroll. And you flick on the TV on the first Friday of the month, and in the corner of your screen is a countdown, literally counting down the seconds till non farm payroll releases. It looks like it's a big deal.
Everybody runs around and jumps up and down. I get the feeling you don't think non farm payroll or GDP is all that important to what happens in equities.
You know, I wouldn't put it that way.
It clearly is important, but that doesn't mean you should do anything about it, for the reasons we have discussed clearly. You know, whether the economy is doing better or worse than expected, is going to affect stock prices. The problem is all of the evidence, there's not a single study I'm aware of that says anything different that.
The odds of your being able.
To exploit this news by trading quickly on it.
That means market timing.
I mean, you know, there's very, very very few people who have been successful doing it. And one of the great ironies is people idolize Buffett and Peter Lynch, and both of them told you never to try to time the market, and yet people not only ignore their advice while idolizing, they tend to do the very opposite. That's why I wrote the book Think Act and invest like buffet. Investing is simple, just act like buffet. But that's very odd for the emotional reasons we've talked about. And the
media plays on these fears and emotions. They know that people will react. They want you to tune in. That's how they make money selling those commercials while you're watching.
But that's not in your interest.
So there's an endless array of other corporate news, dividends, mergers, bond issue in, stock splits, acquisitions. What should an investor do in response to all of this breaking news on the corporate.
Side, literally nothing.
If you have a well thought out plan to make sure you've anticipated, you know, bear markets, recessions, black swans that could hit the market, making sure you don't take any more risk than you have the ability, the willing, and need to take, because if you do, when those black swan or negative events occur, you will likely to have problems driven by fear, and you will.
Panic and sell because your stomach will take over. And even if.
Not, you're going to get so upset, you're going to lose sleep worrying, and life's too short not to enjoy it.
So you're better off making sure your plan.
Doesn't exceed your risk tolerance or your need to take risk, so you don't subject yourself to those.
Emotional issues.
And lastly, if you can't do it yourself, that's the biggest role of a financial advisor. Number one, get the plan right in the first place, and then play Clint Eastwood his cop and say, you know, reminder, hold that six gun to the guy's head and say here, you sign that investment policy statement, go ahead and make my day.
So lately we've seen a big uptick in activist investors, what happens if you hold Disney or Apple or Tesla as part of your portfolio. What should you do when these activists come out of the out of the woodwork and start agitating for change.
I would suggest nothing, because the markets already incorporated that information into prices. The smart guys like Buffett and gold and Goldman, Sachs, and you know every one of these actively managed funds, they're already reacting to that news, and then they're collective wisdom. The stock price is at that moment the best estimate of the future price.
And again, if there was evidence that.
People could exploit it, where do we see it in persistent outperformance? Over ninety percent of the active managers underperform over the long term in every single asset class, and that's even before taxes.
Well recording this, it's twenty twenty four. It's a big election year in the United States. We have two candidates, both of whom either are or have been president previously. People are forecasting a lot of turmoil around this election, maybe even some civil unrest. How should we adjust our portfolios for the big presidential election in November twenty twenty four?
Again, I would urge that everything that you just told me is known by the market. That uncertainty is built into the market. Unless you've got a clear crystal ball about what's going to happen, and nobody does, then the best thing you can do is diversify. And the second thing is you want to make sure you do not let your political biases influence your investment decisions. There's actually good academic research that shows this.
When the party you.
Favor is in power, you get higher returns than when the party you favor.
Is out of power.
The reason is, for example, in two thousand, when we got hit by nine to one one, the events had a big bear market. Well, if you were a publican, you were more likely to think that the Republicans would figure out what actions we would need to get out of it, and then therefore you were much less likely to panic and sell, and Republican investors outperformed Democratic investors during the Bush administration and then the Trump administration. However,
the reverse was true when Obama was president. We got hit with theaight financial crisis, and Democratic investors would have had more confidence and his ability to maneuver out of it.
They were more likely to stay the course. UH and therefore they.
Were able to gain the rebound in the market, and the same thing is.
Now true under Biden.
So make sure you do not allow your political biases to impact your investments. If you're concerned about geopolitical risk, the best thing to do is build a highly diversified plan so that can protect you, like buy insurance against having all your assets in the wrong basket.
So earnings are key drivers of stock prices. How should investors respond to the just torrents of quartally earnings that come out every three months.
There is some evidence here to support the idea that when there are positive or negative earning surprises is called the peed factor post earnings announcement drift.
That because of momentum.
In stocks, which does exist, if you get a surprise on the upside, investors are slow to react a little bit and the prices will tend to rise to some degree. Now, everyone who's an academic and practitioner with an MBA or PhD in finance and math, they already know this, So that evidence is shrinking. So my advice is you're probably best off just to ignore it, don't trade. But there
is some evidence of that. So if you're thinking you're going to get out of a stock anyway, and you had a negative earning announcement, that might trod you to do it, and maybe you'll hold on a little longer. If you think, Okay, I've got to rebalance and sell, maybe you do hang on a little longer.
So to wrap up, investors who have a long term time horizon should expect distractions along the way. But the data shows, whether it's economic data, geopolitics, quarterly earnings, analyst upgrades and downgrades, corporate news, none of us have any extra insight as to how those events will unfold and how they'll impact stock prices in the future. Your best bet stick with stocks for the long haul and ignore the noise. Betr Rid halts And this is Bloomberg's at the Money w