You likely know the legend of “Nessie”, the long-necked, prehistoric beast that supposedly lurks in the deep and murky waters of Loch Ness.
The first recorded sighting of the water monster dates back to the 6th century when an Irish monk stayed near the mouth of the River Ness.
In more modern times, Nessie’s first “sighting” was reported in the Inverness Courier on 2 May 1933 after a local couple claimed to see “an enormous animal rolling and plunging on the surface”.
This report sparked a media frenzy, with London newspapers sending correspondents to Scotland to try and catch a glimpse of the beast, and a circus even offering £20,000 for her capture.
The Loch Ness Monster continues to captivate the minds of people worldwide to this day. In fact, sonar expeditions continued through the decades, with the most recent search – called “The Quest Weekend” – occurring in 2023.
This allure of Nessie persists, despite the existence of many hoaxes, such as the infamous “Surgeon’s Photograph”, a falsified picture from a trusted physician.
This media frenzy is a prime example of market “noise”, and it could be detrimental to the performance of your investments.
Since May was the 91-year anniversary of Nessie’s first modern sighting, this could be the ideal time to assess precisely what market noise is, and how you can drown it out to focus on the long-term performance of your investments.
News headlines can contribute to noise
Much like news headlines regarding the mysterious monster inhabiting Loch Ness influenced researchers, tourists, and investigators, they can also affect your investing decisions.
This form of noise is especially prevalent in this day and age, as you’re constantly bombarded with information about current events. For example, in recent times this might be the wars in Ukraine and the Middle East, high inflation and interest rates, and climbing energy prices.
Since you now have so much information at your fingertips, news about current events could encourage you to check, or even alter, investments held within your portfolio.
For instance, if you see headlines about a period of volatility, you may sell your investments to cut your losses. Yet, by doing so, you may inadvertently hamper your progress towards your long-term goals.
It’s essential to remember that any comment, prediction, or hypothesis is simply based on what someone thinks will happen, making it noise. After all, no one has a crystal ball that can accurately predict the future of market performance.
Social media can also have a considerable effect
Even though social media wasn’t around in the 1930s, there’s little doubt that word of mouth – essentially the social media of the day – contributed to the spread of Nessie’s legend.
In this digital age, social media is perhaps one of the more intrusive forms of market noise. This is especially true considering that many financial influencers and self-proclaimed “experts” are sharing their investment tips and other forms of advice online.
However, this constant stream of information can be overwhelming, which could, in turn, cloud your judgement and decision-making skills.
What’s more, regular social media use could foster a “fear of missing out” – or FOMO – mentality.
Seeing how other people online have earned a certain amount from investments, you may feel the need to jump on the bandwagon and chase trends to achieve similar returns.
Though, it’s vital to remember that a good financial plan should ideally be tailored to your own circumstances.
There’s no such thing as a “best” investment, as something that works for one person may not work for the next.
Emotional biases can also act as an internal noise
Noise doesn’t always emanate from external sources – it could also come internally from emotional biases, namely confirmation bias.
Imagine that, in the 1930s, you had just learned about the existence of a mysterious monster living in one of the country’s deepest lochs.
People want to believe that some aspects of the wide world remain unknown. As a result, anyone searching for the beast would likely unknowingly fall victim to confirmation bias, using their preconceived notions to substantiate any evidence.
For example, the most famous picture of “Nessie”, which showed an animal with a long neck rising from the eerie depths, was released by a respected London physician.
Many people believed the photo was real, but it was later revealed that the doctor had falsified it. Despite several hoaxes throughout the years and a lack of evidence, people have still been searching for Nessie.
Cognitive bias causes you to discount information that goes against your existing beliefs. In particular, you may research assets and only focus on the potential gains, disregarding information on the risks since you already believe it to be a wise investment.
This could lead to a subjective understanding of a certain investment and whether it’s right for you, possibly hindering your potential long-term returns.
This is just one of the many biases that can contribute to noise and negatively affect your investment and decision-making skills.
There are several ways you can block out the noise
If you allow noise to dominate your investing abilities, you may make emotion-led decisions, which can be damaging.
In fact, the Embark Investor Confidence Barometer found that 95% of advisers think emotional decisions – perhaps those made as a result of market noise – are costing clients at least 2% each year in foregone returns.
As such, it’s vital to drown out the noise, and you can do so in several ways – read on to find out how.
Take a long-term stance
Much of the noise you hear daily – such as warnings about global instability causing market volatility – might encourage short-term reactions to current events. In this instance, you may sell your investments to cut your losses.
However, history has shown that markets typically bounce back. Take, for example, this graph, which shows some of the world events that affected global stock market returns since 1988:
Source: Humans Under Management, Bloomberg
As you can see, while each event had an immediate effect on the market’s performance, returns trended upward throughout the timeline.
As such, it’s worth shutting out any noise about short-term fluctuations and focusing on the long-term performance of your investments.
Focus on your own specific goals
It can be sensible to base your financial plan on clear goals about the lifestyle you want now and in retirement.
Typically, noise isn’t relevant to these goals, especially any investment advice you find online from financial influencers.
Instead, it may be wise to focus solely on your goals. By doing so, you could inadvertently remind yourself that your current strategy is tailored to you, and that you may not need to make any changes, provided you’re still working towards your long-term milestones.
This can make it easier to drown out the noise and remain calm in the face of volatility, rather than acting on your emotions and deviating from your plan.
Work with a professional
Perhaps one of the best ways to block out the noise and focus on your own milestones is by working with a financial planner.
They can help you create more precise goals to home in on, making it easier to ignore external influences.
When it comes to internal noise, a financial planner could provide much-needed support and reassurance during periods of volatility, helping you identify when you may be falling victim to an emotional bias.
While it is fun and exciting to believe in the legend of the Loch Ness Monster, perhaps if those searching for Nessie had an informed party in their corner, they would have saved both time and money.
To find out how we could help you drown out the market noise, please email us at info@investmentsense.co.uk or call 0115 933 8433.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
