Ignoring market noise is difficult but not impossible. Here’s how to do it.

Both these were high-profile calls that probably had a big impact on your decision to invest. Maybe you even acted on them and didn’t invest (or even sold). However, if you took the opposite view or ignored these calls completely, you probably made a killing.

Now, before any assumptions creep into your mind, let me be clear that we are not evaluating whether these calls were right or wrong. That only time will tell (years, not months). What we’ll try to do instead is understand how to interpret calls made by the big guns and contextualise them for yourself. Let’s start.

Read beyond the headline

First, it’s important to fully understand the big calls. For instance, this was my takeaway from the first of the two calls mentioned above: Storied research house stops coverage as it cannot find new ideas. The point to note is that it probably did not recommend selling everything and sitting on cash.

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Similarly, the other call was to stop new money flows, leaving current investments intact. In fact the fund manager said in the same note, “The valuation and growth prospects for our portfolio companies look reasonable, and we will continue to hold them." He went on to say it was difficult to find new ideas, adding, “Our offshore fund, which is currently in a very nascent stage, will continue to accept funds."

Underneath the scary headline, the situation was that a research house, at worst, couldn’t find new ideas. The fund manager owned stocks at reasonable valuations. Like you, his clients are probably happy as they held on to their investments.

As you can see, a scary headline can often mask a more benign reality. So if you come across such calls by the big guns – either bullish or bearish – be sure to understand their entire view and, more importantly, see what they actually do. Actions speak louder than words, so follow their actions (if at all) and ignore their calls. I don’t mean to suggest that they are misleading, rather that headlines often don’t tell the whole story.

Put things in context

The other skill you can cultivate from this is learning to contextualise big calls. For instance, if a big momentum trader predicts a market turnaround, you probably don’t have to pay attention to it as a long-term investor.

Similarly, if the advice is from a quantitative investor and you are a value investor, you should know it isn’t for you. If you get these two things right, you’ll understand that most of these big calls are just noise.

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To actually benefit from such calls, you’ll need to find the big guns whose approach to investing appeals to you. And when you do, stick to them – don’t stray.

The other thing to remember is that you are not buying the market – you are buying individual stocks. What may be true for an index may not be true for each stock in it. For example, while the BSE Smallcap Index is trading at sky-high valuations, many small cap companies aren’t. Think bottom-up and don’t let general market opinions get in the way of following your proven approach to picking stocks.

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Also, remember that scary headlines can cause the entire market to fall, giving you a chance to buy in at lower prices. That means all this misunderstanding could actually work in your favour if you are ready to act on short notice.

If you stick to your process, stay loyal to your gurus, and avoid acting on the noise, you’ll have a calmer journey and perhaps better returns to boot.

Happy investing.

Rahul Goel is a finance and publishing professional with over 25 years of experience in the industry. You can tweet him @rahulgoel477.

You should always consult your personal investment advisor/wealth manager before making any decisions.