Its Friday, the day I like to step back and get all Zen on y’all.

As promised yesterday, our subject this morning — indeed, over the past few months — is how to reduce the meaningless distractions in your portfolio (and your life). You want less of the annoying nonsense that interferes with your investing, and more of the meaty data that allows you to become a less distracted and more purposeful investor.

This is a continual process. For me, finding moments of quiet contemplation to think things through is very important. Sometimes that means taking a walk through the woods, or sitting on a boat deck or merely relaxing in a hammock with no distractions. You may prefer meditation, jogging or yoga. Anything that allows you to get out of your self for a few is enough.

My daily process of waking before dawn and writing things down is an enormous aid to me figuring out what I think, to refining my understanding of what is really going on and why. I liken it to an editing process. I spend most of my quiet time deciding what to eliminate. After this process, whats left is almost all signal, no noise.

Here are some things you need to understand if you want to decrease the noise:

More Signal, Less Noise

1. News is Old — it is misnamed and not especially forward looking;

2. Data first and foremost; avoid the anecdotes and narratives;

3. Everyone talks their book (i.e., Whats their agenda?)

4. Recognize what financial chatter is merely idle gossip;

5. What is within your control? What is not?

6. Understand empiricism and probability analysis;

7. Eliminate all sources that are biased, or are not driven by your goals, or have a different agenda; (Delete money losers with Extreme Prejudice)

8. Understand the concept of time, and the long game

9. Separate what is for Fun and what is for Real

10. Refining your process is your goal. Get that right and the outcomes will improve naturally;

Your consistent focus should be to keep yourself concentrating on that which truly matters and learning to reduce or even better, ignore that which does not . . .

If there is interest, I might expand this into a full WaPo column.



Things I Don’t Care About (January 15th, 2013)

What Do You Control? (May 30th, 2013)

Asking the Right Questions (July 18th, 2013)

The Price of Paying Attention (November 2012)

Who Do You Trust? (January 2008)

Lose the News (June 2005)


Category: Cognitive Foibles, Financial Press, Investing, Psychology, Rules

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

17 Responses to “More Signal, Less Noise”

  1. ByteMe says:

    You probably should expand into a column if only to remind people once again that the talking heads and headline writers are not our allies when it comes to investing.

    Where I think most people have a problem area is the intersection between “data” and “news”, when you just get the headline or synopsis without the details. Is the unemployment rate headline number data or noise? Are the housing numbers really data even though they get reported as data? What data is really important and what’s really just noise for investing purposes?

    And how can people learn to make that leap between your cable bill regularly going up and the price of Disney stock (as an example)?

  2. Eric Original says:

    Yes, expand please. This type of article is one of your great strengths.

  3. Is there any indicator or trend to even look at that could give a ‘heads up’ on the market’s next turn? Probably not: VXX, Gold prices, rally in tech, rally in twitter and related, Google 1000…nothing out there to really look at.

    Might as well sit out the markets and wait for markets to make a big turn up, or down, before making a bullish or bearish move.

  4. louiswi says:

    The transition from data, to news, to history should really be measured in nanoseconds. The trick is: how much and in what way history is actionable?

  5. scone says:

    One way to block things out is to be depressed, so you don’t succumb to overconfidence bias:

    Another way is to be avoidant. The people who don’t like investing at all might do pretty well if they were “nudged” into some sort of default balanced fund in their retirement vehicle, because they would set it and forget it for years on end, not even looking at the thing.

    It’s the people who love investing, and spend most of their waking hours in the casino, who are most at risk. It’s like a compulsive gambler working as a dealer. That’s got to do a wicked number on your head.

  6. krice2001 says:

    I find “Eliminate all sources that are biased, or are not driven by your goals, or have a different agenda” to be very important. There are a lot of “analysts” that seem to mix investing strategies with politics. That makes it hard for me to trust their analysis because it seems as if extreme disagreement with policy is clouding their view.

  7. [...] How to create more signal and less noise.  (Big Picture) [...]

  8. rd says:

    A book related to this subject you may find interesting is “Degrees of Belief: Subjective Probability and Engineering Judgement” by Steven Vick – ASCE Press (2002)

    It looks at the Bayesian nature of information evaluation and decision-making in engineering and has an interesting chapter on the nature of being an expert and how you achieve that.

    As I have studied the financial markets over the years, I have realized that the shorter the time frame of your thinking the more you need to be an expert the same way that an engineer has to be expert to successfully navigate the demands of his profession. However, at long time horizons, the average person can perform close to par or even slightly better than the average expert with very little effort, and especially with very little effort. Using Vanguard as an example, dollar-cost averaging 10%-15% of pay into one of their diversified low-cost all-in-one funds for 40 years and doing nothing else at all will set up the typical person pretty well in retirement – this is so mind-bogglingly simple that the industry fights it tooth-and-nail because it generates almost no fees. These options have only been available for less than 20 years so most people now approaching retirement have not been able to take full advantage to date. However, my kids are doing it now.

    I am unaware of any other category in life that is like this which is probably why it is so hard for people to fathom or believe. It is kind of like thinking that sitting on the couch on Sunday afternoons watching NFL football games will mean that you outplayed the average QB in football over a 40-year period. That only happens in beer or pizza commercials.

    Much of the financial sector makes money off of making us believe that a lot of expertise is required to be successful in the long-run when the cost of doing this actually usually accomplishes the opposite. Slowly, options have become available for increasingly diversified low-cost approaches but the archaic structure of the savings tools, such as the myriad retirement account types, mean that many people are still largely locked into relatively low-calibre options.

    The complexity of my account types and the limited options are the main reason why I haven’t been able to simplify as much as I would like to and have to spend more time than I would like understanding what is going on, and especially to detect if there is a move afoot from financial providers, employers, or the government to negatively impact my ability to successfully save and invest as well as understand the risks in the various markets so that I can manage them, especially given some illiquid assets that are difficult to diversify over the next 7-10 years..

    Down the road, I am really looking forward to being able to largely relax, have our accounts consolidated, diversified, and simplified, and not have to worry about the markets too much.

  9. Frilton Miedman says:

    On another blog regarding the death of the PC, I’d mentioned how I could never see myself migrating away from the PC for the fact that it’s taken so many years to learn all the tricks of Windows.

    One of them – CTRL+F, turns any document or web page into a search engine, I can skim articles for relevant words, I also use it for work to look through large documents for relevant information.

  10. leonardcrook says:

    Half way through I was thinking he ought to turn this into a WaPo article. Do.

  11. mpetrosian says:


  12. hs says:

    This is the type of post that brings people to your site. Thoughtful reminders that most of us can benefit from and enhance our trading/investing methods. I also like to read responses. That said, I love read an expanded version on your next WaPo column.

  13. intlacct says:

    “This is the type of post that brings people to your site.”


    I make a point of reading higher quality writers, and the people and works they cite. Life is short.

  14. intlacct says:

    A f’rinstance is Bill Bernstein’s asset allocation home study course at All great reads essential for investors.

  15. golfer says:

    Expand on this topic as it applies to ALL aspects of life, politics, religion etc, in the search for the truth.

  16. [...] — continuously and carefully. As Barry Ritholtz emphasized Friday, we need more signal and less noise. “Once I stepped out of the bubble, I became more aware of a [...]

  17. [...] On Friday, I described a goal of mine: To pursue more signal, and less noise: [...]