Try to Seperate Your Funds and Stocks From The Economy… and TV

In the early days of 2013 I found many Wall Street and economic pundits talking down the U.S. stock markets.  Remember the "fiscal cliff" last Christmas?  They stated a long list of economic and political headwinds for the U.S. economy.  The financial world was supposed to collapse on 1/2/13.  Several of those concerns have come to pass.  Interest rates have moved higher.  Unemployment is still stubbornly high.  The U.S. economy is nowhere near full capacity.

But the reality is the markets in general (and the US market particularly) have done very well so far this year.  The second quarter earnings announcements for most U.S. companies have now ended.  Company earnings were good and the markets survived well (one note of caution here is that many annalists have lowered outlooks for future earnings across the board).

Chicagoland stock market investors can learn a very valuable investment management lesson from the last few months.  The lesson is that the U.S. economy and the U.S. stock markets can at times be separate events.  This is a very important investment concept.  As a investor, you need to learn to separate the outlook for the U.S. economy from the actual investment performance of the stock and bond markets.

You can fill up your entire day reading and listening to economic and political theory.  Entire TV news networks have been built around commentary  on the day to day Washington D.C. soap opera.  Remember that economists and politicians are not business people.  It’s like comparing apples to a bundle of oranges.  I also find that they have a bias towards fear. Fear sells.  Fear drives viewership.

Long term stock market investment success requires more observation skills than economic knowledge and political acumen.  The development of an unemotional and unbiased perspective is what is necessary for long-term investment success.  Your investment process should be based on something far more than todays ‘fear for sale’ on TV.

Cheers,

Ed Downey