Friday, June 24, 2011

When It All Starts Sounding Greek to Me

When I don't feel like listening to Howard Stern, my Sirius satellite radio is often tuned to CNBC.
I figure it helps to keep me apprised of what's going on in the financial and economic worlds. Sometimes, it sheds light on the market's daily movements. And it's often entertaining to hear seasoned money managers arguing their polar opinions about stocks and the market's direction.
There's been a lot of talk lately about Greece, whose economy, of course, is on the edge of financial collapse, and the ramifications of that happening.
It's made to sound like really important stuff when it comes to investing. But is it?
How much does a long-term, individual investor really need to know about things like short-term monetary policy and international situations? For this, I defer to Peter Lynch, one of the greatest investors in U.S. history.
"If you spend more than 13 minutes analyzing economic and market forecasts, you've wasted 10 minutes,"  is Lynch's famous quote on the subject.
Keeping apprised of world news is good practice regardless of whether you manage your investments or not.
But for long-term investors (not day-traders), focusing too much on the buzz of Greek debt or the possibility of another round of quantitative easing or what analysts have to say about the direction of the market can put you at risk.
It's like distracted driving.
Sure, you can get away with a phone call or a radio fiddle here and there.
But the more time you spend texting, the more likely you are to miss a turn, or to find yourself suddenly parked on someone's front porch.

I've had a few of those experiences over the past couple years. 
Two summers ago, I listened intently to a debate about the speed of the economic recovery. An analyst on CNBC predicted a long struggle ahead for railroads. The slow  recovery would be too much weight for the locomotives to pull.
I'd been holding on to shares of Norfolk Southern, which I'd bought near the low and really liked in the recovering economy.
But suddenly, in less than 30 seconds, my confidence started eroding.
This guy had a lot more knowledge and insight than me about the economy.
Within days, I sold.
And over the next couple weeks, the stock turned upward. It hasn't looked back. Since the day I sold, Norfolk Southern has doubled. That's better than twice the S&P's return.
I also would have collected about 7% or more in dividends.
Talk about a nice haul.

Does it help, or hurt?
Sometimes, as individual investors, we get caught up in economic news that may be weighing down stock prices.
It's easy for your confidence to get shaken when the market's tumbling, there's a lot of scary news out there, and voices are coming from every direction to make predictions and prognostications.
It's hard to get above the din, and that can lead to poor choices, like it did when I sold Norfolk Southern.
These days, I try to remember that Lynch quote when I find myself thinking too much about economic concerns. I also think back to an interview I did with a guy who ran an investment firm.
I was surprised when he told me his firm didn't like to rely on the advice of economists.
"Why not?" I asked.
They'd tried, he said. They found out it hurt more than it helped.
When it comes to macroeconomics, maybe there is such a thing as an investor knowing too much.
Maybe we reach a point where it all sounding Greek actually might be a good thing.

How much attention do you pay to economic issues?


  1. Knowing what's going on in the world helps me to make investment decisions. And although I sometimes read others' opinions, I ultimately focus on the facts and draw my own conclusions. It's a little scary at first, but I would encourage every investor to try it.

  2. So, perhaps the mistake is putting too much credence in any one person's interpretation of a situation and its impact on stocks.