Information ≠ Wisdom

Information ≠Wisdom
There’s a lot of information available in the financial press – consider for a moment the 24/7 flow of data from finance-related television networks. But there’s a big problem lurking in all that information. Having lots of information doesn’t truly give you knowledge, and definitely doesn’t give you what you need most – wisdom. Here’s an example.

The financial press, every year, talks on and on about the “September Effect”. September is the “lowest performing month of the year”, statistically speaking. That’s an interesting piece of information. But what do we do with it? Should we pull out of our investments at the beginning of September, and buy back in at the end? What does “lowest performing” really mean here, anyway?

It turns out, if you dig into the numbers, that over the last hundred years September has averaged a 1% loss. Okay – that’s more information. But that still doesn’t tell us what to do about it. I mean, some month had to be the lowest – it’s mathematically necessary, just like some month has to be the best performer. Does that necessarily tell us anything important about September? Should I use this information to justify buying in to the market on September 15th, hoping to catch the bottom of the curve? Well, maybe not – one year September turned in a 40% gain.

What have I learned from all this information? Probably nothing. What good is all of it? Let’s see; I can use it to fuel a nice panic attack – that’s always fun. Or I might be able to use it to make myself feel better about moves in the market I already decided on anyway. Information, in this case, isn’t giving me anything I need.

Don’t let all the information out there distract you from what really matters – your financial goals. Don’t give yourself ulcers wondering what’s going to happen in September. What do you want your portfolio to look like ten Septembers from now? How about twenty? Don’t let all the noise coming from the financial media break your focus.

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