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Selective Ignorance

October 28, 2016

There is a major distinction between the information I looked at when I first started trading and the information I look at now. At first, more information was better. I wanted to know who was saying what on social media, what the talking heads were blabbing about, what rating Goldman gave TSLA, what the Japanese market did last night, and on goes the list. I thought that the more information I knew would equal more profit. I couldn’t have been more wrong. Having more information when I first started trading was fine because I was learning, but it was wreaking havoc on my trading profitability. 


It took me a while to come to the conclusion that less information was better because the more information I consumed, the more productive I felt. It made me feel more like a trader when I would check every website for market opinions, read stock charts, and watch the news. Although I felt productive, none of the information that I was consuming was related to my strategy. I was simply doing busy work. 


Now, I practice the art of selective ignorance. I don’t care what the fed does, what stock I’m being told to “Buy! Buy! Buy!”, and laugh at Goldman's stock ratings. It was one thing to consume all forms of media when I did not have a solid strategy, but only when I had clearly defined rules was I confidently able to filter out all the noise. For me to execute our strategies flawlessly, there are very few pieces of information that I actually need to know and anything else is a distraction. If information is irrelevant, unimportant, or unactionable then I will ignore it. When it comes to trading, the most important word is unactionable. For example, I don’t watch my profit and loss figure on a daily basis because unless I’m at a max gain or max loss, it is unactionable. 


Practicing selective ignorance does not mean that you have to be uninformed about news headlines. I still know if the market in Asia crashed last night, what the fed is doing, or any big headline that is really affecting the markets. How? People will tell me. You don’t have to read anything because if a headline is big enough to truly make an impact, you will hear it from multiple sources. 


The benefits of limiting the amount of information you consume are twofold. Not only does it increase profitability by filtering out emotionally biased mistakes, but it free’s up more time. The hours that I use to spend reading news articles, watching CNBC, or fretting over my profit and loss can now be dedicated to useful work like backtesting. 


The principle of selective ignorance extends far beyond just trading. Applying this to your everyday life can bring awareness to time wasting habits. If you can limit the amount of irrelevant, unimportant, or unactionable information that you take in, than you will free up valuable mental capacity and time to achieve your personal goals. 


I challenge you to practice being selectively ignorant for a week. Write down the key data points that you need to know to execute your strategy and ignore everything else. If you are really craving the news, ask one of your friends or even a stranger while waiting in line if anything big happened in the world today. Most of the time they will have already forgotten what they read that morning. 


TM


Source: The 4-Hour Work Week by Tim Ferriss

 

 

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