The Perils of Investing Based on Financial News

As of the time of writing, Singapore’s market barometer, the Straits Times Index (SGX: ^STI), had risen for four trading days in a row out of the previous five.

This mini-run of increases comes after the Straits Times Index had on last Monday, touched a level that’s 20% below this year’s peak.

Looking at this, it could feel like things are starting to get better.

And yet, by zooming out and looking at the run of financial news over the past week, things look bleak.

Just another manic Monday

Last Monday, the financial news was awash with stories of a Chinese economic slowdown and plunging oil prices. Even the hashtag “#BlackMonday” was trending on social media sites like Twitter.

If we had kept our eyes glued to the financial news, it would be easy to be scared by the headlines and ultimately, scared off from investing. And if we really did end up running away from our stocks, we may have missed out from what followed – four days of stock market gains over the past five days.

But, the real point here is not about trying to time our stock market entries and exits.

A Foolish alternative

The real point is about keeping our eyes on the right things and thinking long-term.

I’d use financial products distribution firm iFast Corporation Ltd (SGX: AIY) as an example. The company released its latest quarterly earnings on 29 July 2015. It reported strong year-on-year growth of 21.9% and 24.6% for its quarterly revenue and earnings, respectively.

But as August progressed, the stock market started falling sharply. iFast’s shares were not spared – they fell by 12% from $1.48 at the start of August to $1.30 at the end of the month. For a more granular look, iFast had even declined by 10.5% to $1.20 on last Monday (24 August 2015) alone.

Here’s the thing though. As all that were happening, there was minimal news coming out from iFast. The key question that the Foolish investor might want to ask themselves in this case is: Has iFast’s business changed materially in August? Does it make sense that the company’s business fortunes had changed so dramatically – up or down – within a period of a month or a day?

The answer, quite simply, is No.

A Fool’s take

The attractiveness of an investment opportunity should be better judged on the basis of the stock’s business performance rather than what the financial media is saying.

In other words, if we can keep our eyes on the right things and listen less to the information that does not help us, we may come out ahead of the market eventually.

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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 contributor Chin Hui Leong doesn't own shares in any company mentioned.