08/12/2024

This advice, which we wouldn't hesitate for a second to give our own kids, given our knowledge of the long-term harmful effects that ultra-processed foods have on our health, can be perfectly applicable in the world of investment.

We are currently awash in a torrent of information from countless media outlets and, for the most part, it's nothing more than investment junk food. Eating this type of food leads us to make decisions about our assets that make us feel good in the short term, but at the expense of jeopardizing our long-term financial health. 

The stories try to explain the behavior of the markets, and every day we receive hundreds of them: from the reasons why the stock market went up or down, to the latest macroeconomic developments, geopolitical problems or a thousand compelling reasons that push us to invest in a specific sector or company.

All these messages bear a surprising resemblance to junk food: we consume them because they offer a quick solution and they keep us constantly up to date. If events are changing at full speed, why shouldn't my portfolio do the same?

Plus, they're everywhere. It's like being in a supermarket with aisles full of pastries, sweets and ice cream, and the fruits and vegetables hidden away in a corner. Making smart decisions in an environment like that is incredibly difficult.

If we analyze the incentives that drive the creators of this type of information, we realize that investment junk food is created for one two reasons: to increase the volume of purchases and sales of financial assets, or to attract investor attention with news-like articles that generate a lot of traffic. The main motivation is not usually to improve our long-term financial health, but to take advantage of our mental biases.

Although eating industrial pastries very occasionally shouldn't pose a serious problem to our health in the long term, the sum of what may at first seem like small investment errors can have huge long-term costs. Which is why this deluge of useless messages is important, and far from harmless. There's always something new to tell and sell.

To try to neutralize this flow of junk food, we need to focus on what we know works in the long term: having a stable distribution of assets that is consistent with our goals, and not constantly changing the holdings in our portfolio. In other words, we have to prioritize the consumption of fruit and vegetables, which are obviously not as appetizing as a nice burger, but they're better for our future health.

In short, as we often do with the cakes on display in a bakery window, we can look at them, but we simply refrain from eating them, except on special occasions.