I wanted to share a quick thought on something that trips up a lot of investors: the difference between the news and the market.
It is easy to turn on the TV or open an app and feel like the world is falling apart.
The news cycle thrives on urgency, furore, and often, fear.
It reports on what is happening right now or what has just happened.
The stock market, however, functions very differently.
The market is a forward-looking mechanism. It doesn't just reflect today's headlines; it is constantly trying to price in what will happen six to twelve months from now.
This is why you often see the market rise even when the news seems terrible, or fall when the news seems good.
By the time a story hits the front page, the market has likely already digested the information and moved on to the next set of expectations.
Understanding this distinction is critical.
If you react to today’s headlines, you are effectively driving using the rearview mirror.
Don't get swept up in the noise - stay focused on the long-term horizon, not the daily ticker.
Take the Venezuelan Oil news for instance…
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Many in the news and on social media think the US will just come in and make a tonne of money from Venezuelan oil.
But they don’t understand the dynamics.
This chart should explain well why it’s not as easy as ‘I see oil. I take oil. I make money from oil.’
How this should perhaps influence your view on the market is that in the short term, this is good for US oil firms as there is less competition.
But it doesn’t mean there will be immediate extraction and an increase in oil.
The market is reacting off of reduced competition and perhaps more buying of oil from the US and Canada, but it’s not directly related to an increase in production of VZ oil.
Make sure when buying single stocks you focus on the forward look, the 2nd and third order effects of the macro before you react instantly to the news.
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