Cutting Through the Noise
Erica Stephenson - Jul 14, 2021
How can we cut through the short-term noise so that we can invest for the longer term?
Noise, according to Nobel-prize winning economist Daniel Kahneman, is the unwanted variability that can cloud judgement and impact decision making. We can make different decisions when influenced by noise, such as when we are upset, tired or hungry compared to clam, rested or well-fed. Kahneman shows how doctors give drastically different diagnoses to identical patients due to this noise. Most of the time, we are unaware of the noise: yet, by reducing it we can make better decisions.
As investors, we must cut through the short-term noise as we invest for the longer term. It's easy to get caught up in the excitement- we'd all like to ride the next superstar investment to financial freedom. We may also feel that we aren't successful investors unless we are in the middle of the action. Yet, when there is too much enthusiasm for wat appears to be a good thing, it can prove unsustainable - the warning signs sometimes apparent to only the astute.
Today's investing landscape looks particularly different than one a year ago, with some economies reopening, strengthening commodities prices and increasing inflationary pressures.