December is the busiest month for many people. So, we at 5i Research are going to try and help you this year by taking some things off your to-do list. In investing, there are things you should worry about, such as corporate earnings,

interest rates

and

inflation

. But in the daily barrage of investment news and events, there are hundreds of things you DON’T need to worry about. Free up some time by ignoring a lot of the noise out there. Go present shopping, trim the tree if you have one, look at the lights, but when it comes to your investments don’t get yourself into a frenzy about the following five items.

‘Expert’ predictions

Much has been said recently about Michael Burry, famous for his housing market call 18 years ago and his subsequent fame through The Big Short movie, and his current short thesis on

artificial intelligence

,

Nvidia Corp.

and

Palantir Technologies Inc.

Could the AI trade pop? Sure, it could. But it could just as easily keep running higher and higher. The key is, no one really knows. There is no shortage of “experts” who will get headlines trying to predict the markets. Some will be right, sometimes. But nearly all will be wrong in the long term. In addition, “bad” predictions, such as “the market is going to crash 50 per cent” get far more media attention than “good” predictions. Fear remains a more powerful driver for investors than greed. Most “experts” actually have hidden agendas. They are either trying to sell something or talk up their book. Burry, in fact, has closed his hedge fund, and is trying to shift attention to his Substack investment newsletter. Crash headlines could help accomplish this goal. Bottom line: ignore all predictions and focus on company fundamentals instead.

Trading from 9:30 a.m. to 10 a.m.

We can’t count how many times we have seen the market roar higher at the opening, only to fade and decline later in the day; or vice versa. Sure, sometimes there is intra-day news that changes things, but just as many times it is simply excessive investor exuberance on early-morning news, or excessive fear on what’s perceived as bad news, which turns out to be not so bad. Press releases typically come out before the stock market opens and then many, many investors use market orders to buy or sell positions. A bunch of market orders, of course, will move prices dramatically. This typically occurs in the first half hour of trading. So, we think investors instead should just pretend the market opens at 10 a.m. Let the excited traders pay too much, or sell too low. The big players (funds and institutions) are doing research in the first hours of the day and then come in after they have determined the true importance of the early-morning headlines. There, we just saved you half an hour of stress, five times a week.

A stock declining on ‘good’ earnings

We have seen this too many times to count: A company reports “great” earnings and then the stock declines. What’s going on? Often, absolutely nothing. Many investors have a “sell on news” mentality. Some investors will sell because while the corporate earnings were good, they just weren’t “good enough.” So, often a stock will decline on good news, and then more sellers step in because “something must be wrong.” We do not think investors should make any decision based on one quarter of corporate results. A stock can decline five per cent or 10 per cent on a “good” earnings release. But if the numbers are truly good, then we would fully expect that stock to recover. There are a million reasons investors might sell. Unless an insider discloses a sale, you have no way of knowing who is selling or why they are selling. Focusing on the fundamentals will free up so much time trying to figure out something you will never be able to figure out.

Target prices

We can’t stand target prices. It is not that analysts do not know what they are doing, it is just that they are kind of arbitrary. Market and company conditions change constantly, so saying a company’s shares will be, say, $100 in a year makes little sense to us. Analysts do not know what market or economic conditions will be in a year. They do not know if the company will acquire or sell an asset. They do not know if a key executive is going to leave or be hired. They do not know interest rates, unemployment numbers, political changes, inflation or hundreds of other data points in the future. Target prices are just educated guesses. We think target prices can cause investors to sell too early. If a stock hits a target price, who cares? The buyers of that stock at that $100 price still think it is going to go up. Selling on an arbitrary number simply makes no sense to us.

Small short interest

Many investors worry if their stock has short sellers betting against it. But, there are many reasons why a short seller sells. Many investors short stocks that have gone up, just on a “reversion-to-the-mean” trade. There are short arbitrage opportunities. Some investors will short a stock as a hedge against another position (pair trading). Some may short against an existing options position. Convertible debentures often result in more short selling at the company that issues the debentures. The point is, a short position does not automatically mean a company problem. So, we tend to ignore small short interests. Now, if a company has a short interest of 20 per cent or more, then we think it is important for investors to find out what that short thesis is. Again, it does not automatically mean a problem, but holders should find out what it actually is that short sellers are betting on, so they are not blindsided if a future problem does occur. But at a small, say 7.5 per cent or so, short interest, don’t fret, don’t worry, and more time is freed up.

  • Is this the end of the market party or just a regular correction?
  • Scared by the big AI stock market selloff? Here are five alternative investment ideas

Peter Hodson, CFA, is founder of 5i Research Inc., an independent investment research network helping do-it-yourself investors reach their investment goals. He is also portfolio manager for the i2i Long/Short U.S. Equity Fund. (5i Research staff do not own Canadian stocks. i2i Long/Short Fund may own non-Canadian stocks mentioned.)

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