What is noise in the market? In this context, noise refers to information and opinions on a company you are invested (financially or emotionally) in. It includes every tweet, post, clickbait news article, and blogger that has something to say on the company you are invested in. “Noise” is usually unspecific, fails to describe a specific problem, uses sensationalist headlines, and compiles a series of facts without a clear implication, conclusion or risk identified. Please note that it excludes credible contradicting facts or opinions that you may not have considered.

What does noise look like? Tesla, Netflix, Apple have all experienced the highs and lows of changing investor sentiment. They have gone through challenging periods of negative profitability, slowing growth or uncertainty about the scalability and sustainability of their competitive advantage. The investors who have held these stocks for the longest periods have likely earned the greatest holding period returns. They are likely to be the investors who have the greatest propensity to ignore noise, focus on fundamentals and stay the course. Closer to home, National Commercial Bank Financial Group has recently experienced an increase in media noise and a turn of investor sentiment. How do you navigate the noise in a market to make better decisions.

First, we start by identifying SOME of the questions you should ask yourself and your investment advisor. These are by no means exhaustive. These are initial considerations that even the most inexperienced investor can ask:

· Is this news net positive or negative to me: For a bondholder, the sale of assets is usually a credit positive, as it creates extra cash flow for bondholders. (As long as the sale of these assets does not meaningfully compromise your collateral position or the future earnings capacity of the company).

· Management’s track record: How well has management handled challenging times in the past? How well do they know the market and the business? Is there a visionary leader driving the mission and vision? Have they survived previous downturns?

· Does the company have enough capital to take it through the trough: The access to cash and capital to take the company through the difficult period is an important factor in determining its probability of making it through a hard time. It can be found in the total equity line item on the balance sheet and can also be compared against the losses the company is experiencing.

· What is the sustainability of the strategic moat and relevance of the product or service being offered. Is there a technology that will make it obsolete on the horizon? What is the structure of the industry? Are there close substitutes? Is rivalry intense? Do customers or suppliers have a lot of bargaining power? The answers to these questions will tell us if the industry is still attractive and the sustainability of the company’s competitive position.

Last and certainly not least, what is the source of the information and what are the motives of the person promoting it. In the US it is not uncommon for billionaires or hedge fund managers to talk and tweet negatively and extensively about a company. In many cases, three months after their negative utterances, readers can find a new long position or the exit of an old short position in the company they were recently criticising in the media. Conversely, investment gurus don’t hesitate to talk positively about stocks that they have long positions in (albeit explicitly disclosed). If you only invest when you read good news in the media — you may find that you are frequently “late to the party”. Negative noise (without basis) is often a great opportunity to buy. Don’t miss yours — locally or globally.

Marian Ross-Ammar is vice-president, trading & investment at Sterling Asset Management. Sterling provides financial advice and instruments in US dollars and other hard currencies to the corporate, individual and institutional investor. Visit our website at www.sterling.com.jm

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