Should I Listen to Financial News for Investing Decisions?

The relationship between financial news and investment success is one of the most misunderstood aspects of investing. Most investors assume that staying informed through financial media will improve their results. The evidence overwhelmingly suggests the opposite: consuming financial news typically leads to worse investment outcomes.

Warren Buffett reads voraciously, but what he reads is fundamentally different from what most investors consume. Buffett reads company annual reports, 10-K filings, industry publications, and business biographies. He does not watch CNBC, does not follow stock tickers, and has specifically warned investors against listening to financial commentators. His office in Omaha famously lacks a stock quote terminal. "If I'm in a room with people and they keep talking about a stock ticker," Buffett has said, "I am in the wrong room."

Charlie Munger is even more direct: "I have never made a good investment decision based on macro-economic predictions, and I have never met anyone who has consistently done so." The financial news industry thrives on macro predictions -- whether the Fed will raise rates, whether GDP growth will accelerate, whether inflation will persist. These predictions are not just useless for investment decisions; they are actively harmful because they create a false sense of knowing the future.

The business model of financial media explains the problem. News networks need viewers. Viewers tune in when they are anxious. Anxiety is created by dramatic headlines, urgent breaking news, and conflicting expert opinions. A calm message of "stay the course, nothing has changed" does not attract viewers or generate advertising revenue. The incentives of financial media are fundamentally misaligned with the incentives of good investing.

Academic research on financial forecasting is devastating. Philip Tetlock's landmark study tracked 82,361 predictions by 284 experts over two decades and found that experts were barely better than random chance at predicting economic outcomes. More damaging, the experts who appeared most frequently on television -- the most confident and dramatic voices -- were actually the least accurate. The correlation between media prominence and prediction accuracy was negative.

Howard Marks draws a critical distinction between first-level thinking and second-level thinking. Financial news promotes first-level thinking: "The economy is slowing, so stocks will fall." Second-level thinking asks: "Everyone knows the economy is slowing, so how much of this is already reflected in stock prices? If the slowdown is less severe than feared, stocks might actually rise." The most valuable investment insights come from thinking differently than the consensus, which is impossible when you are consuming the same news as everyone else.

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The paradox of financial news is that the investors who consume the least of it tend to perform the best, while those who are most "informed" tend to underperform. In investing, ignorance of noise is a superpower.