How do I know what to believe when investing?

I read and watch a lot of news – It is important to stay informed in my role.

It is also important to be able to differentiate fact from fiction, news from opinion and emotional media baiting from something useful we can use and implement in our own lives.

More information is not necessarily better.

This last year we have been bombarded with newsflow around the pandemic. From knowing precisely nothing to being coached by epidemiologists and other experts from all over the world daily. I strove to make sense of it all. I wanted answers.   

The problem is that the more I learned the less I felt like I understood. I think this is because the information was not always complete or so-called experts would contradict one another. I think commentators simply did not (could not) have the answers, so they defaulted to the next best thing, they spoke about it from a position of knowledge based on past experience.

The end result is that you either landed up with an illusion of knowledge – you believe you understand the facts and stop seeking out evidence to the contrary. Or the other option is to actively avoid any news whatsoever – because you can’t work out what to believe you opt to disengage from the process entirely.

Both of these behaviours are sub-optimal and potentially lethal.

The world of money management and investing is the same.

Investment news is by definition biased or incomplete.

The information we get about investing is often quite one sided. Watching the financial media is not helpful. When markets are on a tear, the newsroom is commonly filled up with commentators wisely explaining why the current rally has more legs and how this time it is different. They can make a compelling argument.

When the markets crash, those same newsrooms are filled up with the “I told you so” commentators which were amongst the select few who ‘saw this coming’…. They too sound wise and all knowing.

The tricky part for us to grasp is how they looked at the same data and came up with a different conclusion.

Both will be right and both will be wrong at some stage…. 

Things that we believe one day, turn out not to be 100% accurate the next. Things change. Markets change. New products, new regulations, new taxes and new government policy mean what we believed today may not be true tomorrow, or perhaps not as true. The information is incomplete for just about every situation.

I guess when you try and simplify a relatively complex subject you run the unavoidable risk of leaving stuff out.

There is no perfect investment solution.

There is often not only one right way of getting to a desirable outcome. There are ways of mitigating the uncertainty but not eliminating it.

Having a process and framework through which to navigate this uncertainty can make it more bearable. Being able to add or change variables when the facts change, allows us to answer questions like;

How does this affect my current plan/life?

Do I need to do anything?

Can I do anything better?

What are my biggest risks?