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These days, people's attitudes toward investing seem to turn on a dime. If you're going to be successful as an investor over the long run, you can't afford to let the prevailing mood affect the way you invest.
Running the media gauntlet
In many ways, investing has become a lot easier for individual investors. Discount brokers provide cheap and easy ways to trade stocks. ETFs give investors one-stop exposure to a host of asset classes that were once nearly impossible to buy without pricey fees or more complicated, risky investments like commodity futures. The Internet has made research and information on companies and economic conditions far more available than it was in the past.
But there are downsides to some of those advances. Having instant access to information means that you have to constantly reevaluate your investing decisions, trying to integrate news and changing conditions to your existing rationale for particular investments. Without almost superhuman discipline, you can easily fall prey to changing spins on the way news gets reported -- without realizing that underneath the headlines, little if anything actually changes from moment to moment or day to day.
From bliss to panic
Take last week, for instance. Last Monday, coming off the previous week's worries about Greece, the market rallied as everyone focused on positive news. Investors considered the merger between UAL's (Nasdaq: UAUA ) United and Continental Airlines (NYSE: CAL ) a win-win for both carriers, since consolidation in the traditionally money-losing industry could reduce competition and increase fares. Glowing economic reports for both the manufacturing sector and consumer spending activity renewed faith in the recovery. No one focused much on the beginning of what proved to be an explosive move upward for the U.S. dollar against the euro, one which would see the leveraged UltraShort Euro ProShares (NYSE: EUO ) rise more than 10% by Thursday night.
By Thursday, attitudes had made a 180-degree turn. Everyone's attention was squarely focused on two things: the ongoing crisis in Europe, and the trading fiasco that resulted in the short-lived 1,000-point drop in the Dow. Suddenly, the euro currency crisis was front and center. Investors forgot all the positive signs from earlier in the week, and largely ignored Kraft Foods' (NYSE: KFT ) after-the-bell release of earnings that nearly tripled from year-ago levels, thanks in part to its recent acquisition of Cadbury. Similarly, DirecTV (Nasdaq: DTV ) saw its profit jump more than 175% as it added 100,000 customers during the quarter, demonstrating the advantage that satellite TV providers have had over cable systems like Comcast and Time Warner Cable recently.
If you let yourself get swayed by the way news is presented, then you may well have gone from euphoria to despair, all in the course of a few days. Yet in reality, both positive and negative signs are always there, even if they're hidden beneath the headlines.
The economy has shown some signs of recovery, and corporate earnings have generally come in far better than last year's abysmal showing. Risks persist, however; from time to time, they'll flare up and become more visible. Even when mainstream news sources push you toward thinking from one point of view, you always have to keep the others in mind -- lest you lose your balance.
Make your stand
In investing, it pays to have your own opinion. As I wrote this, I was struck by the words of a post on the Berkshire Hathaway discussion board, in which Fool community member MontezumaCFA succinctly explained Warren Buffett's main edge over other investors:
"[W]hen it comes to his capitalist proclivities, Buffett is not now, nor has he ever been, distracted. Those who see him as merely out-of-step or self-serving are expressing their own naivety about what Buffett brings to capitalism, which is an unadulterated, enthusiastic disdain for distracting impulses. It is the kind of single-mindedness that drives more distractable onlookers nuts."
Each of us should strive for that ideal as investors: Remaining open to new information and opposing viewpoints, but staying true to our own beliefs, even in the face of unsupported hype and silly counterarguments. That sounds easy -- but when the whole world is dumping a stock you like, there's nothing harder than bucking the crowd and buying shares at bargain prices.
You won't reach that ideal overnight. But as soon as you start on the path toward changing your attitude about how you invest, you'll begin to gain increasing confidence about your investing prowess. That will start a cycle of learning and improvement that can last the rest of your investing career -- and greatly enhance your overall success in the process.
Tune in every Monday and Wednesday for Dan's columns on retirement, investing, and personal finance.