Two Simple Things You Can Do to Become A Better Investor

“A lot of us want to believe it – want to believe it badly. But the risk of investing as if inflation were no longer a threat is too great.”

That quote was from the WSJ back in 1982. The headline… Big Investors Start Buying Bonds, But Are Wary of Renewed Inflation.

Investors were buying bonds again. The U.S. was on the back side of The Great Inflation.

At one point, the inflation rate hit 15%. 10-year treasury rates were close to 15% too.

A recent article in the WSJ said that “U.S. government bonds strengthened as investors continued to bet that inflation will remain soft as the Federal Reserve raises interest rates.”

The current 10-year treasury rate is 2.3%.

Two different markets. Yet investors were buying bonds and worried about inflation.

In 1982, investors were doubtful about the Fed’s effort to control inflation and lower interest rates.

Today, investors are doubtful about the Fed’s effort to control future inflation and its plan to raise interest rates.

Financial history tells us a lot.

First, ignore the financial media. It clouds our thinking.

For example, 1982 was a period of high interest rates, high inflation and the continued threat of high inflation.

Today is a period of low interest rates, low inflation and the threat of future inflation.

Yet, both are about investors buying bonds.

Confusing, right?

Don’t worry. It doesn’t matter.

Second, start a “healthy news diet.”

Rolf Dobelli talks about news consumption in his essay, Toward a Healthy News Diet. He says,

News is to the mind what sugar is to the body. News reports do not represent the real world. Our brains are wired to pay attention to visible, large, scandalous, sensational, shocking, people‐related, story‐formatted, fast changing, loud, graphic onslaughts of stimuli.

You can start your healthy news diet by following Warren Buffett’s advice. The quote below is from his annual letter to Berkshire Hathaway shareholders in 2014.

He writes,

Forming macro opinions or listening to the macro or market predictions of others is a waste of time. Indeed, it is dangerous because it may blur your vision of the facts that are truly important. (When I hear TV commentators glibly opine on what the market will do next, I am reminded of Mickey Mantle’s scathing comment: “You don’t know how easy this game is until you get into that broadcasting booth.”)

It doesn’t matter if investors are buying bonds. Or scared to death of inflation.

It’s more important to focus on the business and its performance.

Does it sell products and services that are in demand? Does the business have a competitive advantage? Can it raise prices?

Take in less sugar. Eat more fruits and vegetables.

In other words, focus on what the business will produce. Not the opinions and predictions of the financial media.

 

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