In fact, you may find it’s a relief to get it out of your hair because so much of it is meaningless anyway.
The sheer quantity of financial commentary being offered today on television, radio, the print media, and the Internet requires constant explanation and interpretation of every stock market gyration, no matter how unexplainable it may be. As a result, financial commentators, stockbrokers, and analysts are expected to have an answer for everything.
Most investors understand that much of what passes as market analysis is nothing more than gibberish, but they tolerate it because even stock market gibberish tends to be a lot more interesting than most other topics of conversation.
For some of you this may be difficult to accept, especially if you are an avid follower of television financial reporting or if you have one of those stockbrokers who seems to have an answer for everything.
“How’s the market?” you ask.
“Down 80 points,” he says.
“Eighty points? Why is it down 80 points?”
“Profit-taking.”
Now, you may not be the smartest investor who ever lived, but you’re smart enough to know that since the market has declined in 17 of the past 20 sessions, it is definitely not profit-taking that’s pushing the market lower today. Your broker knows that, too, but has to tell you something because he or she is supposed to know what’s going on. Consequently, the broker will have an answer for any question you can possibly come up with.
How does the broker do this?
On any given day there are probably 5 or 10 potentially bullish news items and 5 or 10 potentially bearish news items on the Dow Jones news wire. Depending on which way the market has gone that day, one or more of these innocent items will be plucked from the tape, like some Miss America from the crowd in Atlantic City, and this news item will be used to explain what the market did that day.
Let us say that, at ten-twenty in the morning, the Dow Jones Industrial Average is down 200 points. There are four major items of interest on the news wire: (1) the President has announced that he will seek a tax cut, (2) Iraq and Iran are at it again, and an Iraqi fighter plane has been shot down, (3) the bond market is higher, and (4) durable goods orders jumped 5.2 percent last month. Item 2 is meaningless but could be trotted out to explain a falling market, if necessary. Item 3 is bullish. And items 1 and 4 can be either bullish or bearish, depending on how you want to look at it.
Your broker can use any one of these news items to put a “spin” on why the Dow Jones is down 200 points.
Your stockbroker is sitting at his desk.
The phone rings. It’s you.
“How’s the market?” you ask.
“It’s down 200 points,” your broker says.
“Two hundred points? How come?”
“Well, the market has been depressed by a couple of news items this morning. First, the President says he wants a tax cut, and that’s bearish because the Fed may decide to raise interest rates to counteract the potential inflationary effect of a tax cut. Also, Iran and Iraq are fighting, and an Iraqi plane was shot down. And durable goods orders were up more than expected, which could be inflationary also.”
“Oh.”
On the other hand, the market might be up 200 points. With the very same items on the tape, the conversation would then go something like this:
“How’s the market?”
“Up 200 points.”
“Up 200 points? How come?”
“Well, the President says he wants a tax cut, and that’s bullish for the economy and for corporate earnings. Also, durable goods orders were up 5.2 percent, another sign of economic strength. Also, the bond market is higher this morning.”
“Oh.”
Since that sort of instant analysis is only a game to pass the time, the tough questions rarely, if ever, get asked, such as: If the market is down 200 points because the Fed might raise interest rates in light of the President’s tax cut proposal, how come the bond market is up? Or, what do Iran and Iraq have to do with the stock market?
Nevertheless, this ritual is repeated over and over again until the stock market closes. If the market turns around and manages to erase its 200-point loss and close higher, the “bearish” items will miraculously be interpreted as bullish, as in “Wall Street had second thoughts about President Clinton’s tax cut proposal . . .” and so on.
Believe me, once you get used to thinking in terms of superstock analysis, you will begin to see these stock market commentaries in an entirely different light—that is, if you bother to see them at all. Can you really invest in stocks while you completely ignore the stock market in general? Can you really ignore the stock market prognosticators and other talking heads who can always be counted on to have an explanation of what the stock market did on any given day, even if in truth there is no explanation?
Yes. Because when it comes to the trend of the general market, it’s doubtful that any one person can have much more insight than anyone else. All you really need to know is this: When interest rates are rising sharply and the no-risk rate of return begins to exceed the inflation rate by more than 3 or 4 percentage points, it’s time to think about reducing your market exposure.
Other than that, nobody knows anything.