harder to ignore his snapping fingers when instructed to do so. In the context of photography, this little trick helps keep the model at ease and looking natural.

When it comes to investing, our inability to ignore extraneous information costs us money. With modern media and technology it is possible to get almost instantaneous information. Financial networks in the form of CNBC and Bloomberg TV allow everyone to keep up with breaking news. It is even possible for individual investors to listen in on some companies earnings calls, right along with Wall Street professionals.

In earlier eras it took a long time for information to reach investors. Consider, for example, the effect of the battle of Waterloo on British financial markets in 1815. Early reports of the battle suggested that Napoleon was winning, and this caused the British markets to fall precipitously.

While the market was plummeting and sellers were panicking, Nathan Meyer Rothschild was calmly buying. Several days later, the news of Napoleons defeat reached London and markets soared. This netted Rothschild some handy gains.14

What made Rothschild buy when others sold? He had advance information provided via the unlikely route of trained carrier pigeons that flew across the English Channel. Thus Rothschild got word of the French defeat several days ahead of others and was able to make a financial killing.

Can we all be Rothschilds by watching CNBC and listening in on earnings calls? The answer for most people is no. In spite of regulations making it harder for firms to release information selectively, by the time news is available to most people, it is too late to make profitable trades.

Wake up will you, pal? If youre not inside, youre outside. So says Gordon Gekko (played by Michael Douglas) to Bud Fox (Charlie Sheens character) in Wall Street. Only those on the inside can trade profitably on news; if you are not sure if you are on the inside, then you are not.

The worst thing people can do is try to trade on news. Perhaps the second worst thing we can do is to even listen to that news. People find it difficult to ignore information.

A famous experiment by Professors Kahneman and Tversky shows the effect of useless information on analysis. In the experiment, people were asked to estimate the percentage of African countries in the United Nations. Before their guess, a random number was generated-in front of the participants-by the spin of a roulette-like wheel. If people were rational, the useless information from a random spin of a wheel would not alter their analysis. In fact, the people in this study were not able to ignore the information. Those people who saw a high number on the wheel had higher guesses for the percentage of African countries in the U.N. than those who saw low numbers on the wheel.15

We are influenced by irrelevant information. This anchoring effect has been demonstrated in many different experiments. Anchoring, for example, is one good reason to make the first offer in a negotiation. No matter how absurd that first number, it often influences the final outcome.

Have you ever made a losing trade because of some talking head on TV, even when you disagreed with the analysis? If so, you know how hard it is to ignore a message, and how costly listening can be.

Ignoring the news on the TV is one solid suggestion. It might even be useful to not open your own mutual fund statements. There is evidence that the more frequently people look at their investing performance, the worse they do.16 When we see losses, we tend to make emotional decisions to exit positions. As weve learned most trades are bad ideas, and emotional trades are the worst.

For those who cant ignore information, the answer is to avoid it. A simple rule is to align your rate of information acquisition with your trading horizon. If you are a day trader, then by all means have the TV on and watch streaming, real-time stock quotes. If, however, you are going to make a few, unemotional adjustments to your portfolio per year, then I suggest that you avoid as much information as possible.

I suspect that an investor, who just read annual reports, or even a farmers almanac, would do better than one plugged into nightly conference calls of corporate earnings.

Conclusion: Keep your financial news flow consistent with your decision time frame. As much as possible, turn off the TV during the day, and dont look at your portfolio.

Lesson #6: Spin Control for Yourself

Nassim Nicholas Taleb, my friend, and the author of Fooled by Randomness, tells a story about one of his former clients. A Swiss firm hired Nas-sims firm to put on a hedged position. The trade involved one Swiss investment paired with a non-Swiss investment.

The bet went on for some time, and it was very profitable. The clients, however, were not happy. They were making money overall, but the gain came by making more on the non-Swiss investment than they were losing on the Swiss investment. In cartoon terms, the payoff to the trade looked like:

Swiss investment LOSS

Non-Swiss investment GAIN

Total: GAIN

Seeing the loss, particularly on the Swiss investment, ate away at the clients. Nassim tried to explain that the important thing was to make money overall. Nothing worked to assuage the clients until Nassim started just reporting the position as:

Total:

GAIN