Advice From Warren Buffett: Ignore Market Noise

Investors should focus on what they know, not market noise

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Oct 20, 2021
  • The market can be a noisy place
  • Investors should try to avoid being disturbed
  • Advice for filtering out the noise
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As an investor, it can be challenging to stop outside views from influencing my investment decisions. Every day I read handfuls of investment reports and annual reports and spend hours reading news articles. Each one of these could potentially affect my way of thinking and lead me into an investment decision I later come to regret. I also have to look at the market continually, which can be incredibly challenging in volatile periods.

Many investors won't have the same problem. They may be able to switch off or go to work. Most jobs don't involve looking at the stock market every 10 or 15 minutes to find a stock price or valuation ratio. As an investment journalist, I realize I face a challenge that many other investors will never encounter. Still, for those of us with investing-related jobs who are constantly reading and thinking about the stock market, I think the processes I have tried to develop to get around the potential psychological impacts of the issues described above could be useful.

A busy place

One of these processes is based on something Warren Buffett (Trades, Portfolio) said at the 1994 Berkshire Hathaway (BRK.A, Financial) (BRK.B, Financial) annual meeting of shareholders.

At the meeting, an investor asked the Oracle if he had any views on a recent article that had appeared in the financial magazine Barron's. The article had tried to calculate the intrinsic value of each Berkshire share. Buffett responded by saying that he did not believe the approach used was appropriate, and he went on to add:

"But everyone in securities markets make choices on that. Every day somebody sells a few shares of Berkshire and someone sell β€” buys β€” and, you know, they are probably coming to differing opinions about valuation."

After providing another criticism of the Barron's valuation, Buffett continued:

"It really doesn't make any difference. I mean, what β€” we don't pay any attention to what people say about Coca-Cola (KO, Financial) stock or Gillette stock or any of those things. I mean, on any given day, two million shares of Coca-Cola may trade. That's a lot of people selling, a lot of people buying. If you talk to one person, you'd hear one thing, and you'd talk to another β€” you really should not make decisions in securities based on what other people think. If you're doing that, you should think about doing something else"

I believe this is a point all investors should keep in mind. The market is a complex organization, with thousands of individuals placing billions of dollars in trades every few minutes. Every single trade has a different reason behind it, and every participant will think something different from the next.

That is why investors may benefit from ignoring short-term market movements and skim-reading investment advice articles. These articles may provide some additional information or a starting point for further research, but they should only ever form part of an investment analysis. The writer is going to have different opinions and experiences, which may influence the ultimate conclusion.

Fundamental focus

Of course, an investor cannot confidently look over investment articles if they do not understand the company in the first place. This is the most crucial factor. Investors must understand the companies they own in detail. Only then can one ignore other opinions entirely. There is always going to be room for criticism and different viewpoints, but if one understands the opportunity in detail first, it is easy to overlook any fluff.

Put simply, every investor has a different idea of what a stock could be worth, and the only way to be sure that your idea is the right one for is to do the research.

That is the approach that has defined my investment mentality ever since I first read these comments from Buffett. If I don't understand something, there is scope for me to be easily influenced, so I stay away. It is as simple as that.


I am/ we are currently short the stocks mentioned. Click for the complete disclosure