The Signal and the Noise (Part 1)

How can we concentrate on what matters?

Radio frequency doubler. Source: Wikipedia

Between Twitter and newspapers and talking-heads and junk mail proclaiming the next turn in the market, what’s a long-term investor to do? How can we stay focused on what we need to know without being distracted by all the noise?

The first step is to understand that most of what’s on the airwaves is static—background verbal clutter of no more consequence than elevator music. The real news that matters for your investing is the news you already know: you just had a child and need to start a college fund; you just turned 50 and can increase your retirement savings contributions; elderly parents needs to arrange their finances to reduce taxes.

Our most significant investment decisions should be driven by our life circumstances. And while those don’t usually make the 10 o’clock news, they’re what we need to concentrate on when we allocate assets, think about investment styles, and even pick stocks and bonds. An effective investment policy starts with the investor – their needs, constraints, resources, and personal concerns. This is what strategic investing is all about: strategies that are tailored to our personal needs.

Sunday morning talk shows may be important for public policy, but our evening kitchen-table-talk is what matters most for our investment policy.

Douglas R. Tengdin, CFA

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