Pragmatic Relationship with Data

Monday, June 26, 2006 | 11:24 AM

Something I have been wanting to address for some time now is the tendency amongst many market observers to “anthropomorphize” one’s relationship with market and economic data. For example, I recently read this sentence: “If you want to look at the following chart and be depressed, then be my guest.”

This is problematic. In the Apprenticed Investor series, I have repeatedly cautioned against having an emotional relationship with any company, stock, or even an econometric measurement. A data point shouldn’t make you depressed or elated – all it should do is make you intellectually curious as to how this fits into the larger picture. It should just “be.” 

Investors should get no more excited about Non-farm Payrolls or CPI or New Homes Sales than they should the summer solstice. It is a periodic phenomena, and your job as the steward of your own finances is to put it into the proper context.

I try to interpret events accurately, especially within the context of how most of Wall Street and the financial media covers economic and market events. I hope I am not tilting at windmills. Too many investors rely on misleading headlines, they fall prey to faulty interpretations, or they overlook major issues.

This often leads me to stake out positions some have called contrarian; others have termed it pessimistic or excessively negative. I find it to be neither.

It is not negative to say it will dark out at night, nor is it pessimistic to point out that up north, it is often cold and snowy in the winter. That’s how I read the data, as cyclical phenomena that gets better and worse on a periodic basis; It ain’t called the Business “Cycle” for nuthin’.

These have led me in the past to:

-Rail on (and on) about inflation, while for the longest time, most of Wall Street  ignored it;
- Describe this jobs recovery as sub-par, while the Street raved about it;
- Identify option expenses as significant threat to Prices (based on reported P/E); - Positively discussed the impact of accelerated depreciation of capital spending;
- Describe Real Estate as an over-extended asset class – but not a bubble;
- Place double digit earnings growth, dividend increases, share buybacks and M&A activity into proper context.

An investor should be neither a cheerleader nor a jeerleader. However, given the overwhelming bullish bias of Wall Street, and the tendency of people to take headlines at their face value, I often find myself pushing back against the mainstream, if only to put these things into context. 

This is not pessimistic – it is pragmatic.

Its opposite – dogma – is a great enemy of investors.

Monday, June 26, 2006 | 11:24 AM | Permalink | Comments (10) | TrackBack (0) add to | digg digg this! | technorati add to technorati | email email this post



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Posted by: Bob A | Jun 26, 2006 11:32:21 AM

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