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

Coming soon: our new one-on-one advice packages. Learn more

Now available: our new one-on-one advice packages. Learn more

Get your entire Smart Saver balance managed free for 3 months. Enroll today

Get your entire Smart Saver balance managed free for 6 months. Enroll today

Introducing Smart Saver: You could earn 1.83% with our low-risk investing account for your extra cash.* Learn more

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
How We Use Your Dividends and Deposits to Keep Your Tax Bill Low

How We Use Your Dividends and Deposits to Keep Your Tax Bill Low

Every penny that comes into your account is used to rebalance dynamically—and in a tax-savvy way.

Take on More Control with Flexible Portfolios

Take on More Control with Flexible Portfolios

You may be an experienced investor who enjoys Betterment but would like to change aspects of our recommended portfolios. Enter Flexible Portfolios.

Why the Turbulence in the Stock Market?

Why the Turbulence in the Stock Market?

Nobody has all the answers to why the market takes a nosedive, but it’s often useful to take a look at the economic precursors that may play a role in early-2018 market turbulence.

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.

Search our site

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