Can you ignore the stock market and win? It’s a nerve-wracking strategy, for sure, but one that has a major backer in Dr. Charles Ellis.
Following current events is a great hobby, truly an enriching experience. It can be baffling, once you get into it, when you meet someone who seems unaware and, worse, unconcerned about what’s happening in other countries, other places around our country, or across economies and industries. Don’t they understand what’s at stake?
Charley Ellis wants you to knock it off. He wants you to ignore the stock market.
Of course, he doesn’t want you to dumb down. Ellis has written great books about investing and about how the finance world really works, including the classic Winning the Loser’s Game and The Elements of Investing, with Burton Malkiel. These two books are excellent starting points for fully understanding how to invest, safely and simply, for the long term.
Dr. Ellis is a longtime financial consultant with a doctorate from New York University. He has taught at Harvard and Yale, chaired the Yale Investment Committee and is a lifetime honoree of the CFA Institute. He would never tell you to ignore the news.
Yet, in a recent interview with Vanguard Group (where he once served as a board member), Ellis has this surprising thing to say about the stream of finance news we overload ourselves with daily — via computers, cable TV, smartphones and the like.
Just ignore the stock market. He told Vanguard’s Christine Rogers-Raetsch we should simply stop trying to make sense of what we hear every day from the financial news media. We should, in fact, ignore the stock market:
Don’t try. Just let it go. If you said, “I don’t understand teenagers and why they like certain kinds of things,” maybe the best answer is, “You don’t need to know. You could just let that go.” Or you say, “I don’t understand why criminals behave the way they do.” One of your choices in life, you say, “You know, I don’t need to know…that — I’m just going to let that go.” There’re a lot of things we don’t need to know. I’m back to I don’t need to know how my plumbing at home works. I don’t even know how the electrical system works. I know it works. That’s what I need to know.
The reason why is disarmingly simple, Ellis explains. Market news is a flood of information, much of it purposefully designed to excite the investor in you. And we know much, much more about the rest of the world in real time than ever before. Too much to process, let alone analyze.
Presuming you could deal with the totality of that flow, do you think you’re alone in your endeavor? Of course not. Thousands of crackerjack traders are already moving and trading on every morsel of data that is shoved their way. The speed and reach of the data is awesome and complex, the reaction times in milliseconds.
It can be hard to balance those facts with our natural, human desire to learn about our world. We are, after all, homo sapiens, “wise man.” We are defined as a species by our brains, the one feature that allowed us to vault ahead of the rest of the primates and the animal kingdom and become us. Not using your brain feels just wrong.
And that’s the trigger the financial news media pulls to get you to act. It’s a vicious circle: They need advertisers. The investment firms that advertise need you to trade in order to generate commissions. You are trained to believe that if you ignore the stock market you quickly and certainly will pay for your “ignorance.”
As a result, the entire medium is built around selling the idea that the world is not so complex, that you as an individual can outsmart everyone else. The product being sold is the idea that you can and should trade — a lot. As the saying goes, if you look around the table and can’t spot the patsy, it’s you.
Of course, the research shows, again and again, that we’re just awful at this game. An unfortunately large slice of our retirements go straight into the dark, bottomless pockets of Wall Street.
Even when we know better, even if we consciously decide to ignore the stock market, a stray headline or an innocent email exchange will set off that familiar feeling, “Hey, maybe I can trade on this…”
Likely the smartest move you will ever make as a serious investor is to turn your back on the daily blast of financial noise and instead ignore the stock market. Follow the news. Read about other cultures and what’s happening. Get your fix of insight and understanding and better yourself as a person.
Just don’t take those insights, however fascinating, to the markets to trade and expect things to go your way.