Economy

BULLS & BEARS: Looking long-term is key to tasting market's fruits

January 10, 2005

If you follow the stock market and are like most people, you can't help but be sucked in to the short-term mentality vortex.

The financial channels and newspapers all focus on short-term, smallpicture events. You can't fault them, though, since it's their job.

The big mistake many folks make is using too much of the short-term, smallpicture information to make long-term, big-picture decisions.

Your mom warned you against making "snap decisions" or "rushing to judgment." Today, largely due to the overload of information, investors make big, multithousand-dollar decisions based on teeny bits of information.

People spend more time trying to save $50 on a plane flight than they do making an investment decision involving 500 times that amount.

The pinnacle of absurdity in snap-decision investing was reached about five years ago when thousands of people actually thought they could make a living day-trading stocks. You don't hear about them much anymore as that endeavor turned into a net-worth black hole.

The small-picture observers of the economy are focused on daily oil prices, quarterly earnings releases and items like consumer confidence numbers.

But as that news-driven noise is swirling around us, major and really historic changes are evolving before our very eyes.

So at the start of the second half of the decade, let's look at the big economic picture and take our eyes off of the minutiae of the day.

In just the last 15 years, capitalism-and with it democratic reforms-has been sprouting in soil where Adam Smith and Thomas Jefferson never would have dreamed possible. Countries that for centuries were controlled by kings and autocrats are increasingly transferring power to commoners and entrepreneurs.

Billions of people, for the first time, are tasting the sweet fruit of business and property ownership. The daily news events on these capitalistic toddler countries focus on the corruption and violence and constantly point out the bugs in the fruit.

My guess is the early days of capitalism in this country were at least as rough, and I'm sure the English press had few positive reports on our progress. But within about a century or so, the United States blasted past its forebears as the world's powerhouse and never looked back.

Economies always grow faster when property rights, tax and tariff policies encourage their people to take risk. That is exactly why the United States leads the world in economic might, new patents and standard of living.

In a recent research report, Deutsche Morgan Grenfell analyst Ed Yardeni wrote, "China's economy is rapidly expanding westward, raising the standard of living of more and more Chinese.

China recently signed a free-trade accord with Southeast Asian nations calling for zero tariffs ... India is booming with stock prices hitting new all-time highs ... and even Pakistan is beginning to develop a middle class."

Add to Asia the rapidly growing economies in the "New Europe" countries, and you see a lot of people who are just starting to earn and spend. That is a very different big picture from just a decade or two ago.

Never in history has there been such a vast number of people becoming consumers at the same time. Yardeni calls it a "global synchronized boom" and points out that ultimately this boom will affect stock prices. I call it sweet fruit.



Dave Gilreath is co-owner of Indianapolis-based Sheaff Brock Investment Advisors, money management firm. Views expressed are his own. He can be reached at 705-5700 or daveg@sheaffbrock.com.
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