What a Difference a Weekend Makes: The Importance of Staying Focused on Fundamentals

It’s easy to get swept up by the positive emotions at the end of the week, especially when markets close on a high note. Buyers and sellers are happy as stock prices rise, and media coverage highlights this optimism. But that enthusiasm is often short-lived, quickly fading by Monday’s opening bell, which can lead to a wave of selling. So, what usually triggers this change? Typically, not much of real significance.

At times, sell-offs are attributed to insufficient data points, like manufacturing numbers that were lower than anticipated. Rapid shifts in market sentiment can be driven by algorithms, and hedge funds may react. The market’s fundamentals, however, have remained essentially the same. Distracting from what’s truly important, this variation is primarily noise. Here is where conventional wisdom is most likely to lead you astray. Without fully grasping the broader context, individuals may hastily make a purchase decision based on what they read or hear.

This is why successful investors never conduct trades in response to short-term thinking or churning in the market. It is important to acknowledge that conventional wisdom is not always correct. In fact, following it blindly can lead to poor decision-making, similar to the phenomenon of herd mentality, which was discussed in our previous blog, “Understanding Herd Mentality in Investing: How Emotion Can Impact Financial Decisions” Reacting to the market’s mood swings without enough analysis can be just as harmful as following the crowd for fear of missing out or avoiding loss.

Investing with a herd mentality is a logic-free zone driven by emotions. It’s easy to lose perspective when markets are suddenly falling or to get excited when they’re suddenly rising. This emotional reaction is precisely what conventional wisdom often uses—a false alarm, a sense of urgency, or anxiety. However, as we have come to realize from experience, blindly going with the flow and constantly responding to changes in the market never brings about sustainable success. Still, the long-term winners in the game among investors are those who can turn a deaf ear to all of this noise and mind their own business: their own investment strategy.

For the long term investment, certain fundamentals should be adopted. Instead of looking at stocks as concepts, investors should think of them as owning shares in actual business ventures. Ask yourself these questions:

• Do you have faith in the company? 
• How much is it worth? 
• Are you confident in the management team?
• How do you see the company’s future holdings in 5, 10, or even 20 years? 

These are the significant questions that have an impact—not the little ravings of stock market analysts.

Attempting to identify the market’s optimal entry or exit point is highly unadvisable and actually a very dangerous practice. While many people claim they can do it, few—if any—have ever done so consistently. Always keep in mind that a disciplined approach is the key to long-term investment success. Investors who stick to their process, regardless of short-term market noise, outperform over time.

Thus, what actually happens between the end of one week and the beginning of the next week? Usually, not very much. It is noteworthy that markets may have an overreaction to any specific minor event or any specific headline, which may not reflect the true picture of companies with reference to their actual values. To avoid falling victim to short-term market movements, it is crucial when investing to have a long-term focus and not get blinded by short-term fluctuations.

Thus, it can be concluded that both conventional wisdom and market noise are illusions. It will be more appropriate to listen to them less by tuning them out while making investments based on fundamentals. Indeed, the true value of an investment is not how it fares on any given day, but rather how it evolves in the long term.