August 12, 2016

Bad news about stocks is the same as no news for investors

Most investors believe that reading stock news is an important part of the decision-making process of investment. This is far from true because what is known about stocks is already reflected in their prices. The only information that is helpful to investors is what is not publicly known, but using information of this type could be considered illegal insider trading.

Bad news is especially useless. On the day of Brexit, everybody predicted and spoke about an ensuing crash in stock prices. However, just a short while later, the stock exchanges were back to their previous levels. This fact had been mentioned by Charlotte Jacquemart of the NZZ, but it hardly made any headlines. Why? The reason should be clear. Nobody cares when nothing happens. It’s not newsworthy.

Volkswagen was in the press for months because of its emission scandal. Did all these negative news help investors make better decisions? Hardly, because VW’s stock price collapsed so fast when the news broke that nobody could sell fast enough. Since then, however, VW’s stock price has re-risen by almost 20%. All the months of negative news about the scandal delivered exactly the wrong message to investors.

For investors, bad news should be treated the same as no news.

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