The Crazy Financial Media: What You Can Do About It

In my opinion, one of the craziest things about the financial media is their tendency to want to explain every short-term price movement that occurs in the stock market. A great example of that folly was given recently in a brilliant blog post by investment manager and blogger Josh Brown.

The following are some headlines that came out in June when oil prices were high, as taken from Brown’s post:

Oil prices jump on Iraq anxiety, stocks fall (Reuters)

U.S. Stocks Fall as Oil Prices Rally Amid Iraq Tension (Bloomberg)

Oil prices up, stocks down (CNNMoney)

Dow Drops Over 100 Points as Iraq Fighting Raises Oil Prices (CNBC)

He then followed up with another set of headlines which appeared over the past week, after the price of oil had declined:

Oil slump leads Wall Street to worst week in 2-1/2 years (Reuters)

Oil Freefall Gives Dow Worst Week Since 2011; VIX Jumps (Bloomberg)

Tumbling oil could take thousands of jobs with it (CNNMoney)

Oil hits stocks; worst week of 2014 for Dow, S&P 500 (CNBC)

So, when oil peaked at around US$115 per barrel back in June, the high price of the commodity was blamed for falling stock prices. With oil now plunging to US$60 per barrel currently, the finger’s again pointing at the same commodity as the cause for a fall in the stock market. What gives? Turns out, as Brown wrote in his blog post, “[the financial media is] watching market prices fluctuate and assigning meaning where none exists.”

Given the zaniness, what can we, as investors, do to insulate ourselves from it? The answer’s simple: We can focus on finding great businesses that are selling at reasonable prices, and then aim to hold them for the long-term.

As the price of oil is really the topic du jour for the financial world, I shall stick with it and use it as an example. As I wrote yesterday:

“At the start of 2005, oil was below US$50 per barrel. It steadily climbed to more than US$130 in the latter half of 2008 before crashing swiftly to around US$40 by the end of that year. Oil then quickly reversed course and bounced between US$90 and US$130 per barrel over the past few years before crashing again to near US$60 currently.

Throughout that upheaval in the price of oil, shares like Raffles Medical Group Ltd. (SGX: R01), Vicom Ltd (SGX: V01), and Dairy Farm International Holdings Limited (SGX: D01), simply shrugged and carried on with growing their businesses.

Oil prices and company profits

Source: S&P Capital IQ; profits for the three companies are normalized with respect to their respective trailing-12-month profits as of 31 March 2005

The chart above (click for a larger image) gives a pictorial overview of what I have described earlier. With their profits climbing steadily, the trio has delivered capital gains (where dividends are not included) of 810%, 577%, and 285%, respectively, since the start of 2005.”

This is what having a long-term focus on growing businesses can bring to the table for an investor.

A Fool’s take                              

Financial news often ascribes meaning to short-term price fluctuations when none exists. Instead of worrying about what can cause shares to zig or zag over the next week or two – and being duped by plausible-sounding but untrue reasons – investors might be better served by focusing on a simple thing: Finding and investing in companies that have the ability to grow over the long-term.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing owns shares in Raffles Medical Group.