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BULLS & BEARS: Day-to-day market headlines get in way of wise investing

April 24, 2006

Every day, the financial press and market pundits provide us with the reason for the previous day's stock market activity. Following a down day, we might read an article headlined, "Investors sell stocks on fears of rising inflation." Perhaps the next day the market rises and we see, "Stocks climb as investors see end to Fed interest rate increases."

What exactly happened overnight that caused this apparent shift in sentiment? Did investors sleep on it and the next morning collectively decide that rising inflation was all of a sudden not a concern? That instead we should rejoice, since there might be an end to interest increases?

Never do we see the simple explanation for the results of any particular day in the market: "Stocks rose because there were more buyers than sellers" (or vice versa on down days).

This is probably not news to anyone who has been around the stock market for a length of time-Wall Street has a short attention span. A year ago, it was the employment report that held the market hostage. That government report informed us how many jobs were created or lost in the prior month. For weeks before the release of this statistic, economists and strategists would debate their estimate of jobs gained or lost. The press would provide us with the "consensus number" of all the predictors. Then on report day, we get the countdown to the release of these figures, and the cameras switch to a reporter standing in the bond futures pit for instant market reaction to the news. We are led to believe that if the jobs number was far from the consensus in either direction, it is a market-moving event.

Unfortunately, all this drama can make one feel the need to react in some way-that we must make some sort of investment move to adjust for these "momentous" events.

Today, the employment statistics hardly warrant a mention in the financial press. Even oil prices, which were the topic of daily consternation a few months back, hardly garner the spotlight these days, even as the price of oil rises to new highs.

Now I'm going to date myself and sound like somebody's dad. Twenty years ago, there was no Internet or CNBC. We had a Dow Jones ticker machine in our office that constantly printed out news items, spilling rolled-up brown paper on the floor. The machine would ring a bell anytime something "important" happened, like a prime rate increase.

There was a period in the mid-1980s when the key issue that held sway over the stock market was growth in the money supply. People would fuss over increases in M1, M2 and M3 and worry about how these statistics would affect their investment portfolios. Today, you have to dig through a Fed Reserve report to even find the money supply statistics, let alone reach any conclusion to what they mean for you as an investor.

How times have changed-well, not really. There always have been issues that captivate the market and hover over investors in the present tense. Like sports and politics, financial matters are regularly debated, rehashed and predicted.

Making investment decisions based on a sound bite or someone's daily ruminations can be dangerous to your wealth. There is no substitute for your own independent, well-reasoned thought when it comes to your financial affairs.



Skarbeck is managing partner of Indianapolis-based Aldebaran Capital LLC, a money-management firm. Views expressed are his own. He can be reached at 818-7827 or ken@aldebarancapital.com.
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