The Writing Process, Frequent Trading, News vs. Noise, Investment Strategies
JK: First, let me say the book was excellent. What gave you the concept? I understand that you had been working on ideas for a manuscript for several years; why “Use the News”?Bartiromo: The concept for the book came from my realizing that there’s been an explosion of financial information and we are in information overload. Often I would go back to my computer and there would be so many items in my in-box that I would be unable to send an e-mail until I deleted them. While it’s wonderful that investors have access to all the data now available to them, it has become a full-time job to sift through it and separate out the valuable news from the useless noise. So I set out to show people how I deal with the explosion of financial information and how other investors could do the same.
JK: What was the process of writing like for you? You mentioned in your acknowledgement that you turned the living room into an office, so we can assume it was a fairly consuming project.
Bartiromo: I had tried to write a book several years earlier and realized I could not do it because I was too busy during the day and when I came home at night I was too tired. Working together with Catherine Fredman made it doable and I enjoyed the process immensely. Catherine and I complemented one another perfectly because she came to the project without the inside knowledge that I was used to, and she made sure the book applied as much to non-experts and individual investors as to professionals. We worked together almost every weekend for nine months, and a lot of weeknights, too, but it was tremendously exciting to see the book growing and taking shape.
JK: One of the main concepts you discuss frequently is “News vs. Noise”. What is the difference between the two?
Bartiromo: News is important information that may influence your investments. Noise is talk or buzz or some headline that prevents you from seeing a story clearly. News is useful. Noise is a distraction. Calling what’s noise and news after the fact is easy. The hard part is sifting through the information when it’s in front of you and committing to a few sources, that is, gearing up your energy in one place and not wasting your energy in another. Deciding which sources to invest your energy in and explaining how best to use them is what this book is all about.
JK: Do you think people trade too frequently? If so, is it a product of too much noise?
Bartiromo: Yes and yes. We have become a society that trades frequently. Investors often act on every tick in the market without good reason. And that has a major downside, which is another reason for this book. Maybe we don’t need to know every upgrade and downgrade of a stock. Although I think the value of venues like CNBC is that they give investors an opportunity to reevaluate the situation minute by minute, maybe we don’t need to follow the market so closely. I think the information explosion has created noise to the extent that people get trigger-happy, which can be detrimental.
One of the most important questions I throw out in the book is: Has the story of your stock changed? Has the reason you bought this stock in the first place gone away? Having the opportunity to follow the market frequently gives you the opportunity to see if you need to reevaluate your portfolio. But reevaluating your portfolio shouldn’t trigger a sell signal so frequently. That’s why it’s important to keep things in perspective, so that you avoid a knee-jerk reaction or a rash decision.
JK: Just how much impact does the individual investor have on the market? Do they possess anywhere near the clout of the institutional investor?
Bartiromo: Individual investors have become far more powerful than anyone gives them credit for. Today, 85 million Americans invest in stocks. Collectively, that kind of buying and selling power can move markets. Having said that, the institutional investor remains the bigger influence on individual trades simply because the institutional investor has more money to support the order and that will have more of an impact on the stock. The average trade of an individual is in the thousands of shares, whereas the institutional trade can be in the millions of shares. Clearly, the bigger the order, the bigger the move in the stock.
