I had the opportunity a few years ago to drive a high-powered race car. At one point in the experience, cones were set up in an obstacle course with sprinklers creating slick conditions at many of the turns. It was a fun but frustrating experience, racing against the clock while trying not to spin out of control on the wet track.
After a few embarrassing attempts my instructor took the wheel and with great skill methodically navigated the course perfectly, and in a record time for our group. He then turned the car back over to me and said, “Sometimes you need to slow down to go faster.”
I love teaching my younger associates and I also love learning from their youthful perspective. This week we were discussing the disastrous announcement last week by the government of a new virus strain. The markets fell immediately as people rushed for the exits. Then only a few days later the same government official reversed course and essentially said, “Oops, never mind.”
Another lightning-fast event occurred this week. First, two of the top analytical firms issued strong buy recommendations on a little-known stock. Investors immediately rushed in and drove the price to record levels. Then just three days later a third firm reported that this same company was embroiled in illegal activity and fraudulent bookkeeping. The stock lost over half its value in seconds.
As we reviewed these two cases of investors being jerked around by instantaneous news reports, with many quickly losing large sums, we asked the question, “How do we know who to trust?” In my younger years these problems didn’t exist so much because it took so long for news to get out in the first place. I used to make investment decisions from reading printed financial reports that were often months old. With instant news there is so much more potential risk of making an incorrect snap decision.
We all agreed that though we live in a world where people make and lose money making quick decisions on fast moving stocks, reviewing our client accounts and our own experience showed that most money had been made with carefully thought-out investments in solid companies. We reinforced a guiding principle that if we feel pressured to make a quick decision based on emotions, a single news item, or desire to make a fast and easy profit, then we are acting on the wrong impulses.
As information speeds up I think it is even more important than ever for investors to take more time to think things through. It’s better to miss the occasional hot stock if in so doing you also miss a lifetime of losing money on bad emotional investments. It’s often best to allow some time for these rapid news cycles to play out just a little bit. This isn’t to say you shouldn’t pay attention, but as I learned from my very short racing career, sometimes you need to slow down if you want to go faster.