Tuning Out Short-Term Thinking
Mental Game of Trading
Featuring Dave Keller
Published on: July 23rd, 2019 • Duration: 6 minutesDave Keller, CMT, president of Sierra Alpha Research, believes that improper consumption of financial media can bias thinking towards the short term. In this episode, he explains why it’s important to take control, limit unplanned exposure, and consume media as part of a predetermined process.
DAVE KELLER: Hi there, my name is Dave Keller. I'm the President and Chief Strategist at Sierra Alpha Research based in Cleveland, Ohio. So, I help financial advisors and institutional investors to make better decisions. And do that in a couple different ways, help them maximize returns, manage risk, and bring more mindfulness and awareness to their investment process. I also enjoy incorporating nonfinancial topics into financial topics. So I'm a student pilot, I'm a musician. And so a lot of the best ideas I think you can bring as an investor are learning from other disciplines, learning from other activities. And I write a blog at marketmisbehavior.com.
So it's funny, I think a lot of people have a love hate relationship with financial media, financial television and other inputs. And I've heard some people say, just turn things like that off, don't pay attention to it, just focus on your process. And I get the idea of it. Because if you pay too much attention to the short term fluctuations, it automatically guide you to more short term thinking. So if you have a choice of always looking at financial media, or never looking at it, never looking at it's probably the better of the two, but I don't think either of those is the optimal answer. And I think it's all about thoughtfully using some of those inputs.
What you don't want to do is have movements in the market. And again, when I'm thinking financial media, I'm thinking something like financial television, again, it tends to be very graphically oriented, they'll tend to bring guess-on that mirror what's happening today. And when I go on financial media, I'm always asked to talk about what's happening right now, because that's what they want to talk about. But as a result, you're very driven to the short term fluctuations. And you will notice on financial television, the entire screen often will glow green or glow red, depending on what's happening with the equity markets. And that'll start to bias your thinking.
So, what do you actually do? I think a thoughtful way to use financial media is to be intentional, to have an intention to when and how you use it. So just like I recommend for most people, turning alerts off on your phone, especially financial alerts, you want to have a time in your process, a time in your routine, where you actually go and proactively use tools like that to understand what's happening, similar to email. It's not great if you check your email every time you get a ding if someone writes you. But if you check it midday around lunchtime, and you check it at the end of the day, too much better way to do it. Because then you have an intention for how you're using your email and how you're communicating with other people. It's not defined by their needs, it's by yours.
So with financial media, I think it's the same way. I have thought a lot of times that thoughtful interviews, especially more longer term interviews or longer form interviews, I think can be really, really valuable because it helps you to reflect and revisit your own sort of predesigned ideas, your own investment approach, and hopefully can help you incrementally become a more thoughtful, well-rounded investor, but you have to use it thoughtfully, you have to have an intention. So this is the time, midday, when I'm going to look at financial media, when I'm going to read articles, instead of reading them real time, I have a way of saving them, I use pocket and I just pop them in a reader. And then at the end of the day, I go through and I read all those articles that I think and watch the interviews that I think are going to be helpful to me.
But if you have them pop up real time, you were all of a sudden defining your process based on that input and not on your own well designed process. So financial media, for me can be really, really helpful. But what's most important is you have to define your intention for how you're going to consume it thoughtfully. So, using financial media for contrarian inputs, it's a controversial idea. And I will not mention any of my peers in the industry and their appearances on financial media, and what that will often meet but it is true. When the market is moving up aggressively, in general, you love to have very bullish people telling you why it's going to keep going. And when things get negative very quickly, you will find bearish people quickly pop up on there, because the guests and the conversations will reflect the short term sentiment.
So you know what, I use that as a contrarian input. It certainly is a valid point. Years ago, running the Fidelity chart room, we would look at magazine headlines. And again, it's a longer term version of- this is before FNN and then CNBC and all those financial networks. The best way you could measure the financial mindset of investors is by looking at Time and Newsweek and those sort of periodicals. And so we, years ago, my predecessors would look at magazine headlines, and the death of equities happened right before the biggest bull market in US history. And when the market rallied in 1990, 2000, you had getrich.com and the New America all talking about technology going to infinity levels.
So that, I would say financial media is a very short term time compressed version of that contrarian mindset. For me, I would much rather use something that's testable and more systematic and more disciplined. So for me, something like RSI and measuring the extremes in price movements should lead you to similar answers, but for me, I like that much more because it's something I can test and track and follow more thoughtfully.