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Do You Make Investing Decisions Based Primarily on the News?

As traders/investors we are bombarded with news every day, most of which seems to be bad. We can’t help but form opinions about what the stock market “should be doing.”

News One
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In my early days as a professional trader I allowed economic news to influence my expectations for equities I traded. While my ego enjoys being “right” as much as the next person’s, I found by eliminating my personal bias and just trading what the market had to offer was much more profitable, and at some point my ego took a back seat to generating income.

I offer a simple example of how reliance on “news” can hurt your trading/investing decisions.

In 2010 Southern Copper (SCCO) was making news about opening a big copper project in Peru. The investment was expected to be recouped within a year of opening the new mine. When the general market began a new uptrend in September 2010, SCCO began moving higher with it. If you had taken a long stock position you would have enjoyed a nice multi-month price increase similar to the general market. However, in the spring of 2011 the Peruvian government announced the Tia Maria Project (Southern Copper’s proposed project) would be canceled, as residents were strongly opposed to the project from the start, despite the president’s previous approval.

In fact, SCCO topped out well before this news was released, demonstrating once again the importance of following technical sell signals.

Emilu Bailes
OptionsANIMAL Instructor

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