1 00:00:16,480 --> 00:00:20,000 Speaker 1: I'm Barry Ridholtz, and on today's edition of At the Money, 2 00:00:20,200 --> 00:00:24,400 Speaker 1: we're gonna discuss noise. Not just any noise, but the 3 00:00:24,520 --> 00:00:30,840 Speaker 1: kind of noise that distracts investors. Earnings reports, news releases, upgrades, downgrades, 4 00:00:31,200 --> 00:00:36,440 Speaker 1: economic data, geopolitics. They can be a confusing swirl for 5 00:00:36,560 --> 00:00:40,680 Speaker 1: long term investors. How best to manage this fire hose 6 00:00:40,720 --> 00:00:44,000 Speaker 1: of distractions. To help us unpack this and what it 7 00:00:44,040 --> 00:00:47,520 Speaker 1: means for your portfolio, Let's bring in Larry Squedrow. He's 8 00:00:47,600 --> 00:00:51,640 Speaker 1: head of financial and economic research at Buckingham Strategic Wealth. 9 00:00:52,040 --> 00:00:55,240 Speaker 1: The firm manages or advises on over seventy billion dollars 10 00:00:55,240 --> 00:00:58,840 Speaker 1: in client assets, and Larry has written or co written 11 00:00:59,400 --> 00:01:04,280 Speaker 1: twenty books on investing. So let's start with our first 12 00:01:04,360 --> 00:01:09,160 Speaker 1: Masters and Business interview we did years ago. You kind 13 00:01:09,160 --> 00:01:12,520 Speaker 1: of stunned me by saying all of those news items 14 00:01:12,880 --> 00:01:15,839 Speaker 1: are meaningless to long term investors. 15 00:01:16,120 --> 00:01:22,319 Speaker 2: Explain, Barry, the problem that investors failed to understand is 16 00:01:22,440 --> 00:01:27,200 Speaker 2: that the market knows everything you know, and the minute 17 00:01:27,280 --> 00:01:32,399 Speaker 2: news comes out, the market instantly adjusts to that new information, 18 00:01:32,560 --> 00:01:36,119 Speaker 2: which is what is moving prices, and by the time 19 00:01:36,240 --> 00:01:38,480 Speaker 2: you react, it's already too late. 20 00:01:38,959 --> 00:01:41,160 Speaker 3: And you should therefore ignore the noise. 21 00:01:41,920 --> 00:01:47,880 Speaker 2: A great example of that is let's say a company is. 22 00:01:47,880 --> 00:01:52,200 Speaker 3: Trading at sixty. This is a real example, and. 23 00:01:52,120 --> 00:01:56,840 Speaker 2: The earning announcement comes out after the market stock earnings 24 00:01:56,840 --> 00:02:00,360 Speaker 2: were up one hundred percent. Now a lot of as 25 00:02:00,360 --> 00:02:02,680 Speaker 2: would jump on that and say, gee, you what a 26 00:02:02,720 --> 00:02:03,800 Speaker 2: great earnings number. 27 00:02:04,000 --> 00:02:04,680 Speaker 3: We would own it. 28 00:02:05,000 --> 00:02:10,480 Speaker 2: First price. The next price it traded at was like forty. 29 00:02:11,080 --> 00:02:14,960 Speaker 2: Why because the market was expecting more than one hundred 30 00:02:15,040 --> 00:02:18,880 Speaker 2: percent earnings, uh, and therefore it was disappointed. So the 31 00:02:18,919 --> 00:02:23,280 Speaker 2: news itself is not relevant. News doesn't matter if it's 32 00:02:23,320 --> 00:02:27,079 Speaker 2: good or bad. That's what investors make a mistake. All 33 00:02:27,160 --> 00:02:30,440 Speaker 2: that matters if it's better or worse than the market 34 00:02:30,520 --> 00:02:34,840 Speaker 2: already expected. And if that's true, then the market moves 35 00:02:35,360 --> 00:02:38,680 Speaker 2: and now it adjusts, and again it's too late to act. 36 00:02:39,360 --> 00:02:42,119 Speaker 2: So you just want to have a plan that's well 37 00:02:42,160 --> 00:02:44,800 Speaker 2: thought out and sit there. Give you one other great 38 00:02:44,840 --> 00:02:48,680 Speaker 2: example from my book General Motives and the Great Recession. 39 00:02:48,720 --> 00:02:53,040 Speaker 2: Announced earnings were down twenty percent, and investors would think 40 00:02:53,080 --> 00:02:56,880 Speaker 2: the stock should crash. Clearly, down twenty percent is a 41 00:02:56,919 --> 00:03:01,359 Speaker 2: bad earnings number. In fact, the stock row because the news, 42 00:03:01,440 --> 00:03:04,440 Speaker 2: while bad, was not as bad as expected. 43 00:03:04,720 --> 00:03:05,840 Speaker 3: The price went up. 44 00:03:05,720 --> 00:03:10,680 Speaker 2: And adjusted to that new information immediately. Research has sewn 45 00:03:10,800 --> 00:03:14,560 Speaker 2: something like ninety five percent of the move occurs literally 46 00:03:14,600 --> 00:03:17,560 Speaker 2: in the first price, which today takes seconds. 47 00:03:18,480 --> 00:03:20,960 Speaker 3: It's that long, and then the move is over. 48 00:03:21,120 --> 00:03:24,600 Speaker 2: You can see that anytime we get an economic news, 49 00:03:24,840 --> 00:03:27,919 Speaker 2: the ten year bond moves let's say five or six 50 00:03:28,000 --> 00:03:30,280 Speaker 2: basis points, and then it tends to sit there the 51 00:03:30,320 --> 00:03:31,119 Speaker 2: rest of the day. 52 00:03:31,200 --> 00:03:34,960 Speaker 1: So let's talk about economic news, because it's not just 53 00:03:35,120 --> 00:03:39,320 Speaker 1: the biggest ones like GDP every month which comes GDP 54 00:03:39,440 --> 00:03:42,800 Speaker 1: comes out quarterly, but every month we get non farm payroll. 55 00:03:43,280 --> 00:03:46,000 Speaker 1: And you flick on the TV on the first Friday 56 00:03:46,000 --> 00:03:48,520 Speaker 1: of the month, and in the corner of your screen 57 00:03:48,680 --> 00:03:52,120 Speaker 1: is a countdown, literally counting down the seconds till non 58 00:03:52,160 --> 00:03:55,240 Speaker 1: farm payroll releases. It looks like it's a big deal. 59 00:03:55,280 --> 00:03:58,160 Speaker 1: Everybody runs around and jumps up and down. I get 60 00:03:58,200 --> 00:04:01,040 Speaker 1: the feeling you don't think non farm payroll or GDP 61 00:04:01,800 --> 00:04:04,800 Speaker 1: is all that important to what happens in equities. 62 00:04:05,320 --> 00:04:07,080 Speaker 3: You know, I wouldn't put it that way. 63 00:04:07,120 --> 00:04:09,840 Speaker 2: It clearly is important, but that doesn't mean you should 64 00:04:09,880 --> 00:04:14,280 Speaker 2: do anything about it, for the reasons we have discussed clearly. 65 00:04:14,520 --> 00:04:17,200 Speaker 2: You know, whether the economy is doing better or worse 66 00:04:17,240 --> 00:04:21,240 Speaker 2: than expected, is going to affect stock prices. The problem 67 00:04:21,400 --> 00:04:24,520 Speaker 2: is all of the evidence, there's not a single study 68 00:04:24,520 --> 00:04:27,880 Speaker 2: I'm aware of that says anything different that. 69 00:04:27,760 --> 00:04:29,400 Speaker 3: The odds of your being able. 70 00:04:29,320 --> 00:04:34,040 Speaker 2: To exploit this news by trading quickly on it. 71 00:04:35,120 --> 00:04:36,760 Speaker 3: That means market timing. 72 00:04:37,520 --> 00:04:41,159 Speaker 2: I mean, you know, there's very, very very few people 73 00:04:41,160 --> 00:04:44,839 Speaker 2: who have been successful doing it. And one of the 74 00:04:44,880 --> 00:04:49,600 Speaker 2: great ironies is people idolize Buffett and Peter Lynch, and 75 00:04:49,720 --> 00:04:52,640 Speaker 2: both of them told you never to try to time 76 00:04:52,720 --> 00:04:56,960 Speaker 2: the market, and yet people not only ignore their advice 77 00:04:57,040 --> 00:05:01,159 Speaker 2: while idolizing, they tend to do the very opposite. That's 78 00:05:01,160 --> 00:05:04,359 Speaker 2: why I wrote the book Think Act and invest like buffet. 79 00:05:04,680 --> 00:05:08,120 Speaker 2: Investing is simple, just act like buffet. But that's very 80 00:05:08,200 --> 00:05:11,719 Speaker 2: odd for the emotional reasons we've talked about. And the 81 00:05:11,839 --> 00:05:17,960 Speaker 2: media plays on these fears and emotions. They know that 82 00:05:18,120 --> 00:05:21,599 Speaker 2: people will react. They want you to tune in. That's 83 00:05:21,640 --> 00:05:24,760 Speaker 2: how they make money selling those commercials while you're watching. 84 00:05:25,120 --> 00:05:26,679 Speaker 3: But that's not in your interest. 85 00:05:27,200 --> 00:05:32,680 Speaker 1: So there's an endless array of other corporate news, dividends, mergers, 86 00:05:32,880 --> 00:05:37,720 Speaker 1: bond issue in, stock splits, acquisitions. What should an investor 87 00:05:37,800 --> 00:05:41,039 Speaker 1: do in response to all of this breaking news on 88 00:05:41,160 --> 00:05:42,080 Speaker 1: the corporate. 89 00:05:41,720 --> 00:05:44,280 Speaker 3: Side, literally nothing. 90 00:05:44,640 --> 00:05:48,240 Speaker 2: If you have a well thought out plan to make 91 00:05:48,320 --> 00:05:53,680 Speaker 2: sure you've anticipated, you know, bear markets, recessions, black swans 92 00:05:53,720 --> 00:05:56,520 Speaker 2: that could hit the market, making sure you don't take 93 00:05:56,640 --> 00:05:59,880 Speaker 2: any more risk than you have the ability, the willing, 94 00:06:00,320 --> 00:06:03,960 Speaker 2: and need to take, because if you do, when those 95 00:06:04,040 --> 00:06:08,760 Speaker 2: black swan or negative events occur, you will likely to 96 00:06:09,360 --> 00:06:13,240 Speaker 2: have problems driven by fear, and you will. 97 00:06:13,040 --> 00:06:15,919 Speaker 3: Panic and sell because your stomach will take over. And 98 00:06:16,040 --> 00:06:16,680 Speaker 3: even if. 99 00:06:16,600 --> 00:06:18,520 Speaker 2: Not, you're going to get so upset, you're going to 100 00:06:18,600 --> 00:06:22,040 Speaker 2: lose sleep worrying, and life's too short not to enjoy it. 101 00:06:22,440 --> 00:06:25,120 Speaker 3: So you're better off making sure your plan. 102 00:06:25,040 --> 00:06:29,160 Speaker 2: Doesn't exceed your risk tolerance or your need to take risk, 103 00:06:29,520 --> 00:06:32,360 Speaker 2: so you don't subject yourself to those. 104 00:06:33,960 --> 00:06:35,039 Speaker 3: Emotional issues. 105 00:06:35,080 --> 00:06:38,360 Speaker 2: And lastly, if you can't do it yourself, that's the 106 00:06:38,400 --> 00:06:42,360 Speaker 2: biggest role of a financial advisor. Number one, get the 107 00:06:42,440 --> 00:06:45,880 Speaker 2: plan right in the first place, and then play Clint 108 00:06:45,920 --> 00:06:49,640 Speaker 2: Eastwood his cop and say, you know, reminder, hold that 109 00:06:49,760 --> 00:06:52,160 Speaker 2: six gun to the guy's head and say here, you 110 00:06:52,240 --> 00:06:56,159 Speaker 2: sign that investment policy statement, go ahead and make my day. 111 00:06:57,440 --> 00:07:01,360 Speaker 1: So lately we've seen a big uptick in activist investors, 112 00:07:01,960 --> 00:07:05,360 Speaker 1: what happens if you hold Disney or Apple or Tesla 113 00:07:05,560 --> 00:07:08,640 Speaker 1: as part of your portfolio. What should you do when 114 00:07:08,680 --> 00:07:11,760 Speaker 1: these activists come out of the out of the woodwork 115 00:07:12,080 --> 00:07:13,800 Speaker 1: and start agitating for change. 116 00:07:14,360 --> 00:07:19,240 Speaker 2: I would suggest nothing, because the markets already incorporated that 117 00:07:19,440 --> 00:07:24,000 Speaker 2: information into prices. The smart guys like Buffett and gold 118 00:07:24,200 --> 00:07:27,160 Speaker 2: and Goldman, Sachs, and you know every one of these 119 00:07:27,320 --> 00:07:31,560 Speaker 2: actively managed funds, they're already reacting to that news, and 120 00:07:31,600 --> 00:07:35,480 Speaker 2: then they're collective wisdom. The stock price is at that 121 00:07:35,720 --> 00:07:39,000 Speaker 2: moment the best estimate of the future price. 122 00:07:39,040 --> 00:07:41,400 Speaker 3: And again, if there was evidence that. 123 00:07:41,320 --> 00:07:44,200 Speaker 2: People could exploit it, where do we see it in 124 00:07:44,320 --> 00:07:50,000 Speaker 2: persistent outperformance? Over ninety percent of the active managers underperform 125 00:07:50,120 --> 00:07:54,120 Speaker 2: over the long term in every single asset class, and 126 00:07:54,200 --> 00:07:55,800 Speaker 2: that's even before taxes. 127 00:07:56,560 --> 00:07:58,880 Speaker 1: Well recording this, it's twenty twenty four. It's a big 128 00:07:58,920 --> 00:08:02,560 Speaker 1: election year in the United States. We have two candidates, 129 00:08:03,480 --> 00:08:07,240 Speaker 1: both of whom either are or have been president previously. 130 00:08:07,720 --> 00:08:10,880 Speaker 1: People are forecasting a lot of turmoil around this election, 131 00:08:11,560 --> 00:08:15,800 Speaker 1: maybe even some civil unrest. How should we adjust our 132 00:08:15,880 --> 00:08:20,240 Speaker 1: portfolios for the big presidential election in November twenty twenty four? 133 00:08:20,840 --> 00:08:24,360 Speaker 2: Again, I would urge that everything that you just told 134 00:08:24,360 --> 00:08:27,559 Speaker 2: me is known by the market. That uncertainty is built 135 00:08:27,600 --> 00:08:30,640 Speaker 2: into the market. Unless you've got a clear crystal ball 136 00:08:30,680 --> 00:08:35,040 Speaker 2: about what's going to happen, and nobody does, then the 137 00:08:35,040 --> 00:08:39,000 Speaker 2: best thing you can do is diversify. And the second 138 00:08:39,080 --> 00:08:42,000 Speaker 2: thing is you want to make sure you do not 139 00:08:42,240 --> 00:08:48,199 Speaker 2: let your political biases influence your investment decisions. There's actually 140 00:08:48,200 --> 00:08:50,520 Speaker 2: good academic research that shows this. 141 00:08:51,080 --> 00:08:52,120 Speaker 3: When the party you. 142 00:08:52,240 --> 00:08:57,000 Speaker 2: Favor is in power, you get higher returns than when 143 00:08:57,000 --> 00:08:58,719 Speaker 2: the party you favor. 144 00:08:58,400 --> 00:08:59,480 Speaker 3: Is out of power. 145 00:09:00,000 --> 00:09:03,600 Speaker 2: The reason is, for example, in two thousand, when we 146 00:09:03,679 --> 00:09:06,360 Speaker 2: got hit by nine to one one, the events had 147 00:09:06,360 --> 00:09:09,360 Speaker 2: a big bear market. Well, if you were a publican, 148 00:09:09,520 --> 00:09:13,320 Speaker 2: you were more likely to think that the Republicans would 149 00:09:13,320 --> 00:09:16,199 Speaker 2: figure out what actions we would need to get out 150 00:09:16,240 --> 00:09:19,520 Speaker 2: of it, and then therefore you were much less likely 151 00:09:19,600 --> 00:09:25,600 Speaker 2: to panic and sell, and Republican investors outperformed Democratic investors 152 00:09:25,679 --> 00:09:30,400 Speaker 2: during the Bush administration and then the Trump administration. However, 153 00:09:30,440 --> 00:09:33,800 Speaker 2: the reverse was true when Obama was president. We got 154 00:09:33,920 --> 00:09:38,840 Speaker 2: hit with theaight financial crisis, and Democratic investors would have 155 00:09:38,880 --> 00:09:43,439 Speaker 2: had more confidence and his ability to maneuver out of it. 156 00:09:43,760 --> 00:09:46,840 Speaker 3: They were more likely to stay the course. UH and 157 00:09:46,920 --> 00:09:48,079 Speaker 3: therefore they. 158 00:09:48,040 --> 00:09:51,280 Speaker 2: Were able to gain the rebound in the market, and 159 00:09:51,360 --> 00:09:52,319 Speaker 2: the same thing is. 160 00:09:52,280 --> 00:09:53,720 Speaker 3: Now true under Biden. 161 00:09:54,160 --> 00:09:58,840 Speaker 2: So make sure you do not allow your political biases 162 00:09:59,120 --> 00:10:03,360 Speaker 2: to impact your investments. If you're concerned about geopolitical risk, 163 00:10:03,400 --> 00:10:07,120 Speaker 2: the best thing to do is build a highly diversified 164 00:10:07,200 --> 00:10:12,000 Speaker 2: plan so that can protect you, like buy insurance against 165 00:10:12,000 --> 00:10:14,760 Speaker 2: having all your assets in the wrong basket. 166 00:10:15,400 --> 00:10:18,840 Speaker 1: So earnings are key drivers of stock prices. How should 167 00:10:18,880 --> 00:10:23,400 Speaker 1: investors respond to the just torrents of quartally earnings that 168 00:10:23,480 --> 00:10:25,199 Speaker 1: come out every three months. 169 00:10:25,520 --> 00:10:28,920 Speaker 2: There is some evidence here to support the idea that 170 00:10:29,000 --> 00:10:33,400 Speaker 2: when there are positive or negative earning surprises is called 171 00:10:33,440 --> 00:10:37,760 Speaker 2: the peed factor post earnings announcement drift. 172 00:10:38,280 --> 00:10:40,920 Speaker 3: That because of momentum. 173 00:10:40,360 --> 00:10:43,280 Speaker 2: In stocks, which does exist, if you get a surprise 174 00:10:43,400 --> 00:10:47,200 Speaker 2: on the upside, investors are slow to react a little 175 00:10:47,280 --> 00:10:51,480 Speaker 2: bit and the prices will tend to rise to some degree. Now, 176 00:10:51,840 --> 00:10:56,959 Speaker 2: everyone who's an academic and practitioner with an MBA or 177 00:10:57,040 --> 00:11:00,520 Speaker 2: PhD in finance and math, they already know this, So 178 00:11:00,640 --> 00:11:05,160 Speaker 2: that evidence is shrinking. So my advice is you're probably 179 00:11:05,280 --> 00:11:08,760 Speaker 2: best off just to ignore it, don't trade. But there 180 00:11:08,880 --> 00:11:12,520 Speaker 2: is some evidence of that. So if you're thinking you're 181 00:11:12,520 --> 00:11:14,640 Speaker 2: going to get out of a stock anyway, and you 182 00:11:14,720 --> 00:11:17,880 Speaker 2: had a negative earning announcement, that might trod you to 183 00:11:18,000 --> 00:11:21,040 Speaker 2: do it, and maybe you'll hold on a little longer. 184 00:11:21,080 --> 00:11:24,160 Speaker 2: If you think, Okay, I've got to rebalance and sell, 185 00:11:24,160 --> 00:11:26,080 Speaker 2: maybe you do hang on a little longer. 186 00:11:26,880 --> 00:11:29,960 Speaker 1: So to wrap up, investors who have a long term 187 00:11:30,080 --> 00:11:35,400 Speaker 1: time horizon should expect distractions along the way. But the 188 00:11:35,520 --> 00:11:42,000 Speaker 1: data shows, whether it's economic data, geopolitics, quarterly earnings, analyst 189 00:11:42,120 --> 00:11:46,640 Speaker 1: upgrades and downgrades, corporate news, none of us have any 190 00:11:46,679 --> 00:11:50,680 Speaker 1: extra insight as to how those events will unfold and 191 00:11:50,720 --> 00:11:54,720 Speaker 1: how they'll impact stock prices in the future. Your best 192 00:11:54,720 --> 00:11:58,360 Speaker 1: bet stick with stocks for the long haul and ignore 193 00:11:58,400 --> 00:12:02,720 Speaker 1: the noise. Betr Rid halts And this is Bloomberg's at 194 00:12:02,720 --> 00:12:14,839 Speaker 1: the Money w