Much ado about nothing – If you describe a situation as much ado about nothing, you mean that people are making a lot of fuss about something which is not very important.
In his book Fooled by Randomness , Nassim Taleb wrote that “news makes idiots of us because it gives us confidence, not insight.” Like a PhD in macroeconomic theory. Now is one such time of the year in India, when after the Union Budget is announced, a lot of us are feeling and behaving like PhDs in macroeconomic theory.
Like a school friend of mine, who called up recently to ask my views on the Budget, and before I could say, “I don’t have any view!” lectured me for thirty minutes on his views.
“How should my investment strategy change with the Budget announcements?” he asked near the end of the call.
“Why should it change at all?” I asked him.
“Shouldn’t it?” he asked back. “Don’t Budgets matter in your investment decision making and journey, given the big tax and economic announcements made? And also because, given these big announcements, some stocks you own or want to own may rise or fall by big margins?”
“I will send you something that may answer your question,” I told him.
This is what I sent him –
Budgets, with all their economic mumbo jumbo and despite their (sometimes) big announcments, don’t really matter to you as an investor in the larger and longer scheme of things.
What really matters is – whatever the tax you pay and whatever happens to the general economy – how much you save regularly and how well you invest those savings.
But the problem is because being frugal despite the economic environment and saving and investing well does not make newspaper headlines, people don’t worry much about these aspects of wealth creation as much as they worry about what is more vivid, like Budget announcements and sharp stock price reactions owing to them.
Avoiding and not reacting to the news, like Budget announcements – unless it’s about a real impact on the future cash flows of the businesses you own – is a competitive advantage in investing.
The longer you remember it through the ups and downs of the markets, and the more you use it in the way you invest, the better off you will be in your wealth creation journey.