How to have a better year investing

I Had One of the Most Enjoyable Years in the Market Ever. Here's How. Click here to watch this 60 second clip on why you should focus on your investment goals, and ignore all the "noise". Hey Fools, I had such a good year as an investor. Not because stocks did well -- although they did -- but because one year ago I made it a personal goal to pay attention to fewer things. Fewer forecasts, fewer predictions, fewer breaking news headlines. It's been wonderful, and it made a world of difference to me as an investor. I want to share with you how I did it. First, a story about why I'm doing this. I sat down with some of my sharper finance friends a year ago to talk about the stock market. Every one of them was nervous. I couldn't blame them. Unemployment was near 8%, the economy was slowing down, and Washington threatened to throw the economy into recession by doing nothing about the looming "fiscal cliff." Many of Wall Street's brightest minds predicted doom.       But the S&P 500 is up 27.5% for the year, including dividends. If we close at these levels on New Year's Eve, 2013 will be the eighth best year for the stock market in the last half-century.       As Nobel Prize-winning psychologist Daniel Kahneman points out, there is literally no correlation between Wall Street's market forecasts and what the market actually does. It's what we call "noise." As we head toward the New Year, you are about to be flooded with predictions about what to expect in 2014. I urge you to take them with a grain of salt. No one has any idea what stocks might do in 2014. I don't pay attention to any market forecasts anymore. Or earnings estimates, or economists' views of where we're headed next. There's no evidence they're useful, and mounds of evidence showing they poison our thinking. I started 2013 vowing to pay attention to things like my own financial goals, my own psychology, and the companies I invest in. Things I can control, in other words. It's a trick I learned from Motley Fool co-founder David Gardner, who has used a similar philosophy to crush the market in his Supernova service, which is opening to new members shortly (click here for more info). It has been a wonderful experience. I think more clearly, I have a better understanding of what kind of investor I am, and I'm more on track to achieve my goals than before. Here are three specific things I did to get here. 1. Avoid broad claims. Realize that everyone's goals are different. I'll be an investor for the next five decades, at least. You might be older or younger, and have a different time horizon. The hedge fund trader on CNBC has to report to his investors every week, and has a completely different time horizon than either of us. Saying, "You should buy/sell stocks" might be rational for one person, and totally bonkers for another. We all have different goals, risk tolerances, and time horizons. The best reason you should stop paying attention to media predictions and guidance is because the guy on TV has no idea who you are, how old you are, how much you make, or what your bills might be. Once you come to terms with this, you realize that the majority of predictions made by the media are probably not relevant to you. 2. Avoid explanations of random events. Pay more attention to historical context. People can't stand the idea that markets are random and unexplainable in the short run, so they try to attach meaning to every event. You'll see headlines like, "Stocks fall 0.5% as investors react to manufacturing data" rather than the more honest, "Stocks fall 0.5% because sometimes they just do that." Instead of reading explanations of what the market is doing, I pay attention to what the market is doing in a historical context. The next time stocks have a down day, remember that they do that, on average, every other day. The next time stocks decline 10% from a recent high, remember that they've done that almost every year since the Civil War. And the next time we have a recession, remember that no one in history has made it to the 5th grade without living through at least one recession. Trying to explain market moves gives us the impression that we can predict the future, which we can't. Looking at market moves in historical context reminds us to keep things in perspective and ignore the noise, which we can. 3. Avoid strong opinions. Pay more attention to people who talk about their mistakes. Psychologist Philip Tetlock studies the science of forecasts. One of his best findings is that analysts who are the most confident about their predictions have some of the worst track records, while those with the best are always questioning their beliefs. The media love confidence and hate timidity, so the guy who yells the loudest gets the most attention. Which explains another of Tetlock's findings: Analysts with the highest media profiles have some of the worst track records. Instead of paying attention to strong, loud opinions, I now give more weight to those who talk about why they could be wrong, what they've learned from past mistakes, and those who think in probabilities rather than certainties -- people like Yale economist Robert Shiller. They are less entertaining, but more likely to offer good advice. I'd highly recommend implementing these into your own financial life. It'll cost you nothing, it'll make you happier, and it may even make you a better investor. Here's to a noise-free 2014. And if there's something else you want to see in these emails -- questions, complaints, or just want to say "Hi" -- feel free to drop me a line at mhousel@fool.com. Happy holidays to you and your family. Until next week, Morgan Housel Motley Fool One Senior Analyst The Motley Fool Click Here This is a promotional message from The Motley Fool 2000 Duke Street Alexandria, VA 22314 If you no longer wish to receive this email, please unsubscribe now. You may also add, change, or remove any other Motley Fool email subscriptions. Copyright © 1995-2013 The Motley Fool. All rights reserved.