Almost every day, as I prepare for various radio shows, I read headlines with the words “unexpected” or “surprise” in them. It seems that just about every piece of data that is released, the actual outcome is different from what the experts or certainly the reporters were planning on.
So why is everything a surprise? Why didn’t anyone see the result coming, especially when the data makes sense after the fact? My experience tells me there are a couple of reasons why.
The first reason is that so many of the articles written today are based on surveying or polling economists or other experts. Often I will see a headline that says something to the effect, that consumers “probably” increased purchases last month according to the expertssurveyed. Probably? How can you make a decision for a portfolio today based on information that contains the word “probably?”
Now I ask myself, what is the purpose of this story when nothing is based on facts but rather a group of opinions? If the actual data comes out and doesn’t match the average of the economists surveyed, then it is a surprise. Economists participate because if they get close to predicting correctly they get quoted in the article.
Second, it seems some of these writers have to print something because they get paid for writing and other websites are doing the same thing. It seems a shame that we have come to the point where a story needs to be put out even if there is incomplete information as the premise.
The point I’m trying to make is that while the market reacts to headlines, it is important that your decisions are based on facts. The strategy you develop is the one you need to stay with no matter what the headlines say.
The market itself has gotten away from using to determine pricing. Everything lately has been based on whether or not the news is bad enough to warrant additional quantitative easing from the Federal Reserve. If fundamentals mean nothing then all you are investingin is the betting on the actions of a small group of men and women at the Fed.
Scary thought.
One of the problems with sticking with fundamentals in a “bad news is good news” world is that good fundamentals are often seen as bad news. In the end, however, good fundamentals will always make for a good long-term investment. Today, for example, we are looking at blue chip companies that have consistent, or increasing dividends and very little, if any, debt.
Also, we look at companies that will continue to survive in an inflationary environment. No matter how bad the economy gets there are certain things that people will always purchase.
Toothpaste, toilet paper and deodorant (we hope they continue buying anyway) are examples of products that are needed during recessionary times. Drugs (the legal kind) and overall health care companies are usually strong in recessionary times, at least for a while yet.
And, finally, food and energy, will always be in demand regardless of economic conditions. These are tough times to invest with confidence especially when companies are doing things that violate our trust. Instead of companies being too big to fail, I am starting to believe that there are some companies that are too big to trust.
Gary L. Rathbun is the president and CEO of Private Wealth Consultants, LTD.
