Tune Out the Noise and Brush Up on the Basics

Put down the newspaper, turn off CNBC, and stop clicking that. And that. And, yes, that too. None of it is doing you any good.

Fixating on the market's minute-to-minute news won't help you make your next brilliant financial move. At best, all the hours, days, and -- admit it -- weeks spent soaking in sensational stories will yield a few timely bon mots to toss off at the next office happy hour. Mostly, though, it's all noise, and it's costing you a serious amount of sound sleep -- and maybe even some actual money.

There are much better ways to spend your time than brooding. Allow us to make a few suggestions.

Hard times = learning opportunities
Not to be glib, but what we have on our hands right now is a classic "teaching moment," or perhaps more accurately, some much-needed study hall time.

Why now? Simple: When times are good, when our portfolios are a sea of glorious green, we're much too busy congratulating ourselves on our superior returns and outsized talents than looking for what we should be doing better. We ask, "What more is there to learn?" -- because clearly, we've got game.

In contrast, when things are dour, we're much more open to admitting that we may have a few weak spots in our game plan. That makes now the perfect time to direct your psychic bandwidth toward more productive tasks, like becoming a better investor.

Three ways to use your time Foolishly
Here are some ways to while away the time you previously spent glued to the tube.

1. Improve your people-judging skills.
One of the most important parts of any investment process is to have a sense of the management team. Remember, stocks represent shares of a business -- and businesses are run by people. Therefore, when you invest in a business, you are, in fact, investing in people. For better ... and sometimes for worse. What have Steve Jobs of Apple (Nasdaq: AAPL  ) or Steve Ballmer of Microsoft (Nasdaq: MSFT  ) been up to lately? If you own these businesses and don't know, make it a point to find out. You not only owe it to yourself, but your portfolio will thank you for it.

Bad managers cause shareholders pain and cost them money. An investor's job is to determine whether or not the people who steer the ship are philosophically aligned with everyone else who owns the company (e.g., you, the shareholder). Key questions to ask about the people at the helm include:

  • How are the key company leaders compensated? How does the way they are paid compare to competitors'? How much of the company do insiders own, and how did they get it (e.g., through stock option grants or, even better, did they buy shares on the open market)?
  • Are these folks solid capital allocators? Or have they wasted cash on buybacks when the stock is richly priced?
  • How long have they been there? Have the leaders been around long enough to have seen it all? Is the founder still kicking the tires? Are there any notable folks on the board?

Management is such an important part of the analysis process that every investor should have a management rating checklist. Start building your own checklist and use it to review the competence of the key players for every stock you currently own.

2. Get to know a company -- up close and personal.
It's fine to get investment ideas from what you read in the popular or business press. It's quite another to commit actual dollars to the idea without getting to know the real company. The buying first and learning later strategy has worked out poorly for shareholders of Fannie Mae (NYSE: FNM  ) .

Put down the tabloids and head straight to the source: Type "sec.gov" in your search engine and start picking out some juicy bedtime reading: some company 10-Ks.

The 10-K is the Rosetta stone of stock information. There you'll find must-know information on the industry, the key financial metrics that drive the business, company management and critical issues that affect performance past, present, and in the future. Most importantly, the 10-K will help you better know what really matters when you're assessing a particular business and what can be considered "noise."

Once you know a few new businesses up close and personal, you're well on your way to achieving the next step ...

3. Build a watch list.
When preparation meets opportunity -- Booyah! Investors who do their research ahead of time can confidently pounce when the price is right. In other words, the time to read Apple's 10-K is not after the stock drops 15%.

Keep up with the companies that pique your interest by putting each on a watch list. The most efficient way to manage your list is to add it to a portfolio tracker so that all the news pertaining to your watched companies will be gathered in one place. So when share prices of great companies like Amazon.com (Nasdaq: AMZN  ) or Costco (Nasdaq: COST  ) fall to a better valuation point, you'll be ready to strike.

Perfect timing
Those are just a few suggestions to help you turn away from the noise and focus on the things that really matter, both in good times and bad. Right now your time is best spent paying attention to relevant news about your favorite stocks and looking for your next investment opportunities. Focus on the right things, and good results will follow.

For more in our "What Investors Should Be Doing Right Now" Special Report:

Andrew Sullivan, Dan Dzombak, Dayana Yochim, and Wade Michels contributed to this report. Andrew owns shares of Apple. Apple, Costco, and Amazon are Motley Fool Stock Advisor recommendations. Microsoft is an Inside Value selection. The Motley Fool is investors writing for investors.


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  • Report this Comment On October 29, 2008, at 8:43 PM, SmartStop wrote:

    We seem to obsess on "what to buy and when" and pay little attention to the question of "when to sell." I like this quote from Terry Savage over at The Street:

    "It's so much easier to think about buying stocks than selling them, because buying requires only a basic optimism that future growth will create wealth. Who wants to think about selling -- a decision that is likely far down the road?

    Traders, on the other hand, are always thinking about when "enough is enough." They're willing to lock in a profit without remorse, even if the stock goes higher; they're willing to take a loss quickly, without "hoping" that the stock will rebound." http://www.thestreet.com/s/when-buy-and-hold-investors-shoul...

    I absolutely agree that knowing the company is rule #1, but even the best of companies correct regularly -- and it can take years for them to recover. Wouldn't it be better during those corrections to take a time out. It works for the kids when they're being cranky -- same logic should be applied to stocks. Take a look at this comparison, (http://smartstops.net/LearnMorePages/ExitStrategyComparisons... it seems pretty obvious that knowing when to sell is as important, if not more so, than know when to buy.

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