How to Filter Out Noise

Reflections #8

Welcome to this week’s edition of Reflections. In this issue, we explore How to Filter Out Noise in investing—a skill that can transform both your portfolio and your peace of mind. By the end of this article, you'll hopefully not only learn how to sharpen your focus on what truly drives returns but also discover how cutting out unnecessary distractions can save you time and improve your overall well-being.

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"In the short run, the market is a voting machine but in the long run, it is a weighing machine."

—Benjamin Graham

Noise in investing:

Market noise consists of short-term fluctuations, sensationalised news, and knee-jerk reactions that often distract investors from the fundamental value of businesses.

In the age of constant connectivity, the volume of financial news, opinions, and predictions can be overwhelming. Many investors feel the pressure to stay informed about every market move or react to every headline. However, this approach often leads to overreaction, anxiety, and, ultimately, poor decision-making.

"Investing is not about beating others at their game. It's about controlling yourself at your own game."

—Benjamin Graham

While staying informed is important, not all information is valuable. Much of the content we consume daily is noise—short-term chatter that distracts from the bigger picture. Successful investors know how to distinguish between what’s noise and what’s signal, focusing on fundamentals over fleeting trends.

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Understanding What Matters

At the heart of filtering out noise is the ability to focus on the key drivers of long-term value. This means cutting out the day-to-day market fluctuations, avoiding media hype, and zeroing in on what truly impacts the companies you invest in: their business models, financial health, and competitive position.

Warren Buffett famously ignores market predictions, preferring to focus on the intrinsic value of businesses. He reminds us that "forecasts may tell you a great deal about the forecaster; they tell you nothing about the future."

By concentrating on long-term fundamentals, you can avoid getting swept up in the emotional highs and lows of the market.

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The Pitfalls of Reactivity

Reacting to every piece of news not only takes a mental toll but can lead to frequent trading—a costly mistake. Constantly buying and selling based on short-term noise increases transaction fees and taxes, eroding your returns. Moreover, jumping in and out of positions in response to market volatility can undermine the ability to stay the course and benefit from compounding.

As Seth Klarman wisely put it, "The stock market is the story of cycles and of the human behaviour that is responsible for overreactions in both directions."

Instead of reacting to noise, adopt a patient, long-term approach. Trust your research, and give your investments time to play out.

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Strategies for Filtering Noise in Investing

To effectively filter out noise and focus on what truly matters, it’s essential to develop a disciplined investment process. This approach will help you sift through distractions and zero in on the factors that drive long-term success. Here’s how to build that process:

1. Focus on Fundamentals: Prioritise analysing key business metrics such as revenue growth, profit margins, cash flow, and management’s execution. Avoid getting caught up in short-term market movements or speculative predictions.

2. Allocate Time to Thinking: Set aside regular time for reflection and analysis, free from the constant flow of market news. This helps you build a deeper understanding of your investments and maintain perspective during turbulent periods.

3. Build Conviction: Develop a strong understanding of each company you invest in. When you have high conviction, you’re less likely to be swayed by daily fluctuations or media noise, allowing you to stay the course.

4. Go to the Source: Whenever possible, rely on primary sources of information—company filings, earnings reports, and direct communications from management—rather than secondary interpretations or opinions.

5. Implement a Media Diet: Limit your consumption of financial news and avoid the temptation to constantly check market updates. Overexposure to short-term commentary can lead to reactive decision-making, which erodes long-term performance.

6. Maintain a Long-Term Mindset: Focus on your specific investment time horizon and the long-term potential of your portfolio. Ignore daily volatility and remember that market cycles are normal, but quality companies tend to outperform over time.

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Conclusion

In investing, less is often more. By filtering out the noise, you can concentrate on what truly matters: building a portfolio of high-quality businesses that compound over time. Focus on long-term fundamentals, stick to a disciplined process, and resist the urge to react to every piece of market noise.

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ICYMI

Previous Reflections:

The Case for a Concentrated Portfolio

The Shrinking Investable Universe

Cash and its Place in a Portfolio

Our investing philosophy:

Our Investing Philosophy [Free Checklist]

If you like our work and you’re interested in the types of companies we invest in, check out or most recent portfolio update here:

Portfolio Update #2

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We hope you enjoyed this post. If you found it valuable, feel free to share it, and stay tuned for our next edition!

Have a good rest of your week,
The S.C. Team

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Disclaimer: The content provided in this newsletter is for informational purposes only and does not constitute financial, investment, or other professional advice. The opinions expressed here are those of the author and do not necessarily reflect the views of Schwar Capital. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results. The author may or may not hold positions in the stocks or other financial instruments mentioned. Always do your own research or consult with a qualified financial advisor before making any investment decisions.