When it comes to reading up on investments it’s important to understand investment news. More importantly what is – and what isn’t – investment news.

Here are two guidelines we use to assess the worth of any news & analysis. Once you know these guidelines, you can apply them too, to put such commentary into proper context – be it from a blog, the media or your next-door neighbour.

Consider the Source of Investment News

Whether a piece resembles a television infomercial or an academic treatise, first discover who is behind the work. With today’s search engines, it’s usually easy to find out more. In fact, if it is hard, that’s a red flag in itself. Google the author’s name and see what else comes up.

• What are their credentials? Do they have a consistent, credible, seasoned platform from which to be a voice of authority on the subject?
• What are their motives? Is the information purely academic, a thinly veiled sales pitch, or somewhere in between?
• Has the work been rigorously peer reviewed? No matter how convincing an assertion may seem, if it has not withstood the gamut of respected, peer-reviewed scrutiny, it’s best to take it for what it is: one person’s potentially fallible opinions.

Is the Investment News Information or Knowledge?

Let’s say the information and its sources pass the credibility hurdle. An equally important question is: Can you benefit from it? There’s a major difference between information and knowledge when it comes to investing.

Information is a fact, data, or an opinion held by someone. Knowledge on the other hand is information that is actionable. i.e. we can use the information to take alternative action, or do (or not do) something differently to obtain a different result.

Given the never-ending deluge of financial news, this is no small question.

Pick any day, throw a dart at its current events, and you will hit information that seems important to the market. Sometimes it tempts you to jump on a fast-moving band wagon, lest you miss out on promising profits.

Other times, a gloomy outlook may frighten you into losing your resolve. Either way, the implication is that you can improve on your outcomes by taking advantage of the information.

There are several problems with this logic.

1. By the time you’re aware of good or bad news, the rest of the market knows it too, and already has incorporated it into existing prices.
2. It’s unexpected news that alters future pricing, and by definition, the unexpected is impossible to predict.
3. Any trades, whether they work or not, cost real money.

Rather than try to play an expensive game over which you have little control, a better way to position your life savings is according to market factors that you can expect to control, such as:

1. Minimising costs
2. Forming an investment plan to guide your way – and sticking with that plan
3. Capturing returns available by participating in expected long-term market growth
4. Maintaining diversified holdings to dampen market risks

When you read dire predictions of impending doom (i.e., market risk), you can rely on planning and diversification to carry you through that risk.

Likewise, when you read forecasts about happy days ahead, you can feel confident that your portfolio already is positioned to cost-effectively capture a portion of those gains commensurate with your goals.

Applying these two handy guidelines to the information you shared with me today, my advice remains the same: Enjoy any information for its entertainment worth … and then get on with investing according to your long-range plans.

If I can help you further analyse this specific piece, or help you form or clarify your investment plans, please let me know.