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Definition of 'Noise'

Noise is a term used in finance to describe random fluctuations in the price of a security. These fluctuations are not caused by any underlying fundamental changes in the value of the security, but rather by factors such as investor psychology and market sentiment.

Noise can make it difficult to identify true trends in the market and can lead to poor investment decisions. For this reason, it is important for investors to be aware of the potential for noise when making investment decisions.

There are a number of ways to reduce the impact of noise on investment decisions. One way is to focus on long-term investing. Over the long term, the effects of noise will tend to average out, and investors will be more likely to capture the true value of the security.

Another way to reduce the impact of noise is to diversify your portfolio. By investing in a variety of different securities, you can help to minimize the impact of any single security's price fluctuations.

Finally, it is important to be patient when investing. Noise can make it difficult to see the true value of a security in the short term. However, over the long term, the value of a security will tend to reflect its underlying fundamentals.

By understanding the concept of noise, investors can make more informed investment decisions.

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