Free for 90 days: Sign up now and get 90 days managed free after your first deposit. See offer details

<title>Dismiss</title>
Investing Basics

How The Nokia Deal Affects You

A big acquisition like Microsoft's $7 billion purchase of Nokia can get investors fired up. But that doesn't mean you need to do anything. Beware of "attention-driven" buying.

Articles by MP Dunleavey

By MP Dunleavey
  |  Published: September 5, 2013

Beware of “attention-driven buying," the temptation to invest based on big news events.

Here's the bottom line: Enjoy the headlines. Don’t invest by them. Learn more about Betterment

It’s a big deal. Microsoft is paying nearly $7.2 billion in cash for Nokia, the Finnish mobile phone company, acquiring 32,000 employees and a CEO who’s a possible successor to current Microsoft chief Steve Ballmer.

The Wall Street Journal called the acquisition a “blockbuster”; the New York Times termed it “audacious,” and Ballmer himself was quoted as saying this was “a bold step” into Microsoft’s future.

So what should a smart investor do with big news like this?

In most cases, nada.

Don’t just sit there…

The trouble for many people in the face of big news is that there’s an almost irresistible temptation to do…something: buy, sell, reallocate, call your broker (to say you called her, if nothing else). Headline events—whether a hurricane, election, war or corporate merger—make us restless, itchy for action. Is there a way to profit? Avoid a loss?

When you want to jump on a stock (Nokia’s up!), that’s sometimes called “attention-driven buying”: you’re reacting to what some researchers call “attention-grabbing events” that make you believe you should invest your money there, now.

It’s almost like a successful ad campaign. Headlines and gabby commentators can help spotlight a company, trend or stock—so it’s momentarily elevated out of thousands of others. Rather than sort through those, it’s easier to buy whatever grabs your attention.

Profit? Not

But trading on headlines is likely to line the wallets of brokerages, not you. Short-term trading amounts to placing bets, often against large hedge funds and institutional players, which are better positioned to take advantage of short-term moves. Individual investors are much more susceptible to “attention trading” than professionals,  according to a 2006 study by behavioral finance researchers Brad Barber and Terry Odean.

To make the wisest choices for your money, “it helps to identify yourself as an investor, not a trader,” says Betterment behavioral finance expert Dan Egan. A trader is looking for a profit, and usually a quick one, and as a result is always reacting to news. An investor isn’t caught making knee-jerk reactions which don’t affect long-term results.

The better way to invest

As Dan pointed out in a recent post on the value of doing nothing, the human impulse to react affects us all—even soccer players—and it’s not always a smart idea. Goalies actually prevent more goals from being scored when they stay still, it turns out—but they move around, tracking the balls, under the conviction that they’re doing the right thing.

An investor takes the longer view, and at Betterment we’re all about helping you become a better investor. The less you do, the more you gain—in both money, time, peace of mind.

Market fluctuations are frequent; companies’s fortunes rise and fall. Rather than focusing on what’s in the news, keep your eyes on the horizon. They say it keeps you from getting motion sick when seas are stormy.

 

Recommended Content

View All Resources
Managed Account or Self-Directed Brokerage Account?

Managed Account or Self-Directed Brokerage Account?

Let’s explore the key differences between two types of common investment accounts: managed accounts and self-directed brokerage accounts.

How to Do a Direct IRA Transfer

How to Do a Direct IRA Transfer

A transfer of your IRA to Betterment is easy and can be done online in four simple steps.

Our Team of Experts

Our Team of Experts

Our executive investing committee includes experts from a range of backgrounds. We make strategic decisions based on a systematic, evidence-based approach.

Explore your first goal

Safety Net

This is a great place to start—an emergency fund for life's unplanned hiccups. A safety net is a conservative portfolio.

Retirement

Whether it's a long way off or just around the corner, we'll help you save for the retirement you deserve.

General Investing

If you want to invest and build wealth over time, then this is the goal for you. This is an excellent goal type for unknown future needs or money you plan to pass to future generations.

Smart Saver

You could earn 20X more than a typical savings account with our low-risk investing account for your extra cash.

How would you like to get started?

Your first step toward a smarter investing future starts here.

Create a Betterment account

Go ahead and join the smart, modern way to invest.

See what we can do for you

Tell us a bit about yourself, and we'll show you the benefits of investing with us.

Get a free investing checkup

Help us get a sense of your investing approach and see how you could improve.

Transfer a 401(k) or an IRA

Move an existing retirement account into a Betterment IRA.

Download the mobile app

Enjoy the Betterment experience anywhere on the go.

<title>Close</title>

Search our site

For more information and disclosures about the Betterment Resource Center, click here. | See our contributors.