Really I should focus this post on, “Why the media should have nothing to do with your finances”, but Twitter is the stock du jour and since Musk’s bid for Twitter was everywhere, even part of an SNL skit- here we are.
Unless you work for Twitter and Elon Musk’s acquisition of the company directly impacts your paycheck or compensation, he has nothing to do with your finances. Even if you own Twitter stock. I wholeheartedly believe that for most people, that is the truth. And it will be true next month if there is some news story that touches one of your other stocks.
So, if you’re one of those people who spent time tracking the Twitter acquisition last month for anything more than entertainment value, hopefully by the end of this post you’ll be convinced that whatever the next big story about the stock du jour is, it’s not worth your time.
I know, some of you are sitting here reading this thinking “this is ridiculous, if I own a stock or am thinking about buying it how can what’s going on with the underlying company have nothing to do with my finances. How could that NOT be worth my time to follow? I want to be an informed investor!.”
Here’s the thing:
My only job is to help clients make smart choices with their money in alignment with their goals. The media’s job is to grab the attention of the general public regardless of whether or not what’s being said is true or relevant to the reader. Very different.
Whatever information you’re getting from the media, you’re getting it late.
You’re getting it after someone else acted on it. Researched it. Spun it. You’re getting it after it sat in your inbox for an hour or the weekend or seeing it on a re-run of Mad Money. If you’re making financial decisions based on stale information and not based on a longer-term strategy that gets you or keeps you where you want to be financially you’re already in trouble.
People spend so much mental energy on minutiae of different inconsequential investment opportunities. I think a lot of it stems from the (what I call) “war stories”. We hear about so and so who bought some stock at its lowest for pennies and made a cool six figures. If the stories are true- great for that person. I’m simply not that lucky. And even if I believed I were, I don’t like leaving my family’s financial future up to chance.
Your finances are made up of 6 main areas: Cashflow, Debt, Investments, Insurance, Taxes, and Estate Planning. Each of these areas have multiple sub-buckets, and I’d argue that while your investments are an important slice of the whole picture, if one stock in your portfolio (or even a handful of them) have the potential to move the needle for you in terms of your overall financial picture, your energy would be better spent on diversifying your assets from both a tax and holdings perspective and focusing on freeing up cash to create a more balanced portfolio. Not worrying about whether to buy or sell at a profit based on random information that just blew up the picture.
Public opinion about whether or not Twitter would be bought by Elon Musk went on a rollercoaster ride over the course of the month of April. Reporting about the deal changed basically day to day as different “experts” speculated about whether Twitter would blow up the deal or choose to accept an offer. CNBC Pro among other media outlets sent out headlines strongly suggesting investors holding Twitter should sell after the offer and jokes about Musk’s bid even made it to Weekend Update on Saturday Night Live with Michael Che and Colin Jost. Everyone was in on the “joke” and then a few days later the deal was finalized. Basically, over the course of several weeks a major deal came out of nowhere and the general public watched, some people choosing to interpret the information as rationale to buy, others to sell, and still others unsure but wishing they knew the “answer”.
The day the Elon Musk offer to buy Twitter seemed to really hit the public consciousness, I got an email headlined “How to trade Twitter’s Stock after Musk’s offer”. Their analysis was that the offer was a “sign to investors to ditch the stock”. The stock was trading at $45 that day. The day after Musk acquired Twitter, the stock price was sitting at $49.11.
Let’s say you bought Twitter the day of that announcement as a contrarian investor at $45, and were lucky enough to decide to sell at the highest price since then, $51.70. You’d have made $6.70 per share. If you had 1,000 shares (meaning you spent $45,000 investing in Twitter on the day you bought- unlikely, but let’s go with it) then you would have made $6,700 on your $45,000 investment. That’s just about a 15% return in a few weeks if you had “perfect timing” based on the information we have right now. I put perfect timing in quotes because for all we know, Twitter could be the next Google and end up trading over $1000 next year. If that’s the case, your timing isn’t so great. But assuming this is the highest it’s ever going to be, you made a good move. What now? If you don’t need the money you need to invest in something else for your time horizon and do the same thing all over again. And meanwhile, $6,700 is real money, but if it’s your life savings it probably shouldn’t be in Twitter and can we agree you have bigger problems here if it was?
That’s the thing about buying and selling non-diversified assets: timing is everything. Timing of when you bought and timing of when you sell. And no one knows the right timing. Notice I’m saying non-diversified assets and not stocks. Because this holds just as true for selling a house when you only own one (or even a handful) the same way it holds true for your stocks. Everyone intellectually understands this, but we still think that we have the ability to sell at the “right” time. Like there is even a right time. The truth is, it’s always the right time for SOMEONE. Just maybe not you. Because always, the right time for YOU is when your need for the money coincides with the greatest net profit. Net because you need to account for taxes, fees, holding costs, etc.
The goal with long term investing is to always have the money you need liquid and the money you don’t need right now growing and working hard for you to beat taxes and inflation for some future point in time when you do need it to be liquid. Period. That requires you to always have 1. Surplus cashflow to invest (this can be profit off of a healthy investment portfolio reinvested properly) and 2. a tax-optimized place to invest that you’re fairly certain the holdings will grow consistently over your time horizon so that you can benefit from compounding.
If individual stocks (or individual properties, even) and speculation about whether or not those stocks or real estate holdings are a large part of the foundation of your finances, you’re likely leaving too much up to risk AND also likely have too much lazy money sitting around “waiting” for opportunities. A market dip of some sort, the “right thing”. I see it all the time. And with clients who have multiple six figure incomes and bonuses, and live well below their net incomes, it’s fine. Are they optimized? Usually no. But are they still going to get where they need to be? Yes. Do they typically still have a basic level of security? Yes. Are they still going to retire on time if they make a few missteps. Yes. (And on time for them typically looks like early for many others).
But when I see other clients without a huge savings rate. Whose goals are big or who are playing catch up to meet their goals and making big sacrifices to do it, it gets really sticky.
When it comes to investing, one of the most insidious ideas I hear time and time again as a financial planner is the concept that tuning into financial media makes you an “informed” and “better” investor (think, Bloomberg or Squawkbox on TV, Fortune or Money Magazine on the Newsstand, and CNBC Pro or Motley Fool in your inbox). That “paying attention” to these things means you’re more financially literate and able to do better with your money. Not only have I found this to generally be untrue, but my experience is that paying attention to financial news and media actually causes those who follow those outlets to live in constant doubt wondering if they should “do something” differently.
Instead of sticking to longer term, time tested strategies, these investors typically end up either afraid to invest consistently and at the level required to meet their goals because they’re paralyzed by making the wrong decision or implementing the wrong timing OR they go in full force but tend to have lower long term investment results because they’re consistently changing the plan and chasing stale advice that never seems to really be working for them. Sometimes these people find me and they become clients who can spend the hours they used to spend bingeing on financial media spending time with their families instead and enjoying their hobbies. I like to think that most of them ditch financial media altogether, understanding that Elon Musk has nothing to do with their finances, and that if they do tune in, Jim Cramer becomes their version of trash TV.
I’m sure there are outliers, but a girl can dream, can’t she?