The Only Daily Market Update Worth Paying Attention To

Focus on what counts.

May 27, 2014 at 6:35PM


The worst thing the media gives us is the daily stock market update.

"Stocks closed up 0.4% today." "The Dow gave up gains by mid-morning." "The S&P 500 went up during breakfast, fell during lunchtime, and twirled around at 3pm." It's all irrelevant, designed to make nothing look like something.

But I understand people's desire for news, and writers' desire to write. Rather than abandon the daily update, I would replace it with something simpler and more meaningful. Like this:

NEW YORK – S&P 500 companies earned $2.71 billion of net income on Tuesday. $890 million of that will be paid out as dividends, with the remainder retained for future growth.

That's it. The report would be the same tomorrow, the next day, and the next. Figures would be updated quarterly, but the format wouldn't change, ever. ($2.71 billion is what S&P 500 companies earned in the last 12 months divided by 365). 

The only consistent way average people can make money in stocks is to let company profits and dividends accrue over time. If you insist on tracking stocks on a day-to-day basis, the only reasonable way to think about them is to track how much accrues to you each day. Maybe you make $10 a day in dividends, or your share of profits this year from companies you own works out to $25 a day. Those are pretty much the only daily numbers that have any relevance to you as an investor, as they offer the closest (but still incomplete) gauge of what you'll earn over time. Warren Buffett took this to the extreme commenting on his Goldman Sachs preferred shares a few years ago: "Our preferred is paying $15 in dividends per second ... so as we sit here... tick tick tick ... it's $15 in the bank."

Doing this reinforces the idea that volatility (stocks going up and down in the short run) isn't the same thing as risk (earning a low return over time). Stock prices change far more than stock values do, and investors frustrate themselves when they confuse the two. Investor Eddy Elfenbein made a smart point about this:

This is a fact that all individual investors should understand when they invest: Each day the S&P 500's intrinsic value rises by about 1/30th of 1% -- a tiny, tiny amount. But the average daily swing on the market is about ... I mean it's come down recently, but historically it's been about 1%. So think about that: Each day on average you're swinging 30 times what the market is actually worth, what the actual intrinsic value is.

Most investors spend too much time tracking stocks and following financial news. But if we're going to have daily updates, report numbers that actually mean something.

Tick, tick, tick. 

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics. 

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A Financial Plan on an Index Card

Keeping it simple.

Aug 7, 2015 at 11:26AM

Two years ago, University of Chicago professor Harold Pollack wrote his entire financial plan on an index card.

It blew up. People loved the idea. Financial advice is often intentionally complicated. Obscurity lets advisors charge higher fees. But the most important parts are painfully simple. Here's how Pollack put it:

The card came out of chat I had regarding what I view as the financial industry's basic dilemma: The best investment advice fits on an index card. A commenter asked for the actual index card. Although I was originally speaking in metaphor, I grabbed a pen and one of my daughter's note cards, scribbled this out in maybe three minutes, snapped a picture with my iPhone, and the rest was history.

More advisors and investors caught onto the idea and started writing their own financial plans on a single index card.

I love the exercise, because it makes you think about what's important and forces you to be succinct.

So, here's my index-card financial plan:


Everything else is details. 

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