There are simple too much news and data out there in the investment world for an investor to consume everyday. To become an effective investor, one got to tune out the noise, that is to differentiate what is useful and what is not.
Many have asked Warren Buffett on his view about the financial market and his reply was always the same. Warren says tries to think about things that are important and things that are knowable. In other words what is going on in the financial market is likely unimportant to him.
Important and Knowable these are two key components he looks out for when presented with information. So the trick is to only pay attention if the information satisfy BOTH criteria.
Below are some examples of such information?
Important & Knowable: Product Quality, Strength of Branding, Management Quality, Competitors, Company Historical Financials, Company History
Important but not Knowable: Interest Rate Direction, Regulatory Risk, Environmental Risk, Climate Change, Change in Country Risk (You can see these
Unimportant but Knowable: Who is selling the stock, Historical Price Movement, Technical Analysis, Temporary Reasons causing stock volatility
Unimportant and Unknowable: Market Sentiment, Market Rumours, Senior Management health issue
So for value investors who believes the long term price of a stock will rise or fall in line with the business fundamentals of the company, tuning out the noise can certainly makes you sleep more soundly at night.
The next time you have read a news or article do remember to ask yourself is this important and knowable?
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