July 22nd, 2019 – 10:30 –
I don’t know a single parent who is not sensitive to outside ideas to which his or her child is exposed. Whether it be an inappropriate show, song or graphic image, regardless of our political views, religious affiliation or educational background, I think we can agree that it is wise to monitor what our children digest and, at times if necessary, block information. Somewhere along the way, however, we turn over this responsibility and assume we’ve done our job.
As adults we’re fully capable of making wise decisions despite any outside influence. My guess is, most adults are well aware of certain types of content they take in and the negative impact it may have on their emotions and thus have set boundaries accordingly. We may identify horror films as ‘off limits’ because we don’t like the impact they have on our sleep. In addition to horror films you may stay far away from extremely violent films or sexually explicit content. You may favor inspirational shows or stories recognizing the positive impact these have on you versus the alternative. These boundaries are, of course, common among wise adults; yet, for some reason I would argue that our guard comes down when it comes to general newsflow, and we truly don’t realize the strong effect this has on our emotional well being.
What, exactly, am I getting at? Well, I would propose that, if you had no idea where our stock market, unemployment rate or general economy was sitting, yet you read headlines and listened to the general media, you would quickly surmise we are at lows not seen since the Great Depression. Of course, since you’re not totally in the dark with the market, the next logical assumption, after consuming news, is that it is only a matter of time before the bottom falls out and down we go.
Don’t believe me? The following are the headlines from three different websites I visited just now:
Huawei CEO warns of ‘the US falling behind’
Are We in a Baby Boomer Retirement Crisis?
10 High-Flying, Overvalued Stocks in Danger of Crashing
Stocks fall, S&P 500 and Nasdaq post worst week since late May
I can vividly recall the conversations I had with prospective clients, when I began managing money in 2001. The market had begun its correction, after several years of outstanding returns, and the tech sector had begun its historic decline that wouldn’t end until two years later. The general investor’s mood was far from fearful and, rather than assuming a bear market was upon us, most folks wanted to pounce on weakness buying up shares in companies that literally had no earnings and, in some instances, not even any real sales. I built a business educating people on fundamentals and the general investing principal that it takes earnings and cash flow to sustain stock advances. Any prospect who decided to work with us was forced to adopt extremely cautious positioning, which ultimately served us incredibly well.
Fast forward a few years later as the general stock market advanced on the heels of a real estate boom, stocks were an afterthought, and the speculation and positive mood had switched to real estate, as folks who otherwise were not in the business of rental properties, flips or fixer-uppers found themselves embarking on an adventure that certainly would be a great investment for years to come. We know how that story played out. When the real estate market imploded, stocks followed and while the speculation in the stock market was far from euphoric, the 50% decline was not only financially but also psychologically damaging.
Nearly two decades later, and general investors still recall the stock pain from 2000. They remember the real estate collapse in 2006 and the general economic decline of 2008. It’s easy to understand just how hard it is to remain invested, much less optimistic, in a market and economy that, by all accounts, is doing better than it has in the last 50 years. Trust me, I understand.
It is for this exact reason, over the last year, I adopted self-imposed restrictions on the content I digest. No longer will I read general headlines, listen to general talk radio, nor do I even watch the networks I appear on regularly. Why? It’s really quite simple. The message is wrought with hyperbole and emotion that can easily impact my attitude and frame of mind.
Rather than partake in sensational media publications, I now only focus on hard data such as the price of copper, which gives me an unbiased look into global economic demand. I read the quarterly reports of companies I follow, paying special attention to cash flow, balance sheets and their outlook for the future. I also pay close attention to what the bond market is saying about the Fed’s actions and interest rate policies. Finally, I observe the consumer, through unemployment, personal spending and consumer debt levels. You see, this information, while at times delayed, does not include a spin looking to gain additional clicks, views, likes or shares. As Joe Friday would say, ‘Just the Facts.’
There is no question that the global economy is facing an uncertain future. The tension between the US and our biggest trading partner, China, will directly impact the short term market movements for months, if not years, to come. It’s easy to become negative in the face of such uncertainty; however, I would like to propose an alternative view.
While the administration pursues trade negotiations, do you think companies that are dependent upon Chinese manufacturing are sitting idly by waiting patiently for the outcome to determine their future corporate fate? Not a chance. At this very moment, any company with business in China is taking every step possible to find an alternative solution or another country to fill the gap. Not only is this activity being taken by corporations, but each country, with even a remote possibility of gaining this new business, is working hard to secure its economic future. Basically, what is happening is an economic land grab with new countries such as, Vietnam, Cambodia and India, doing everything they can to secure this business. For those countries that are genuinely serious about this possibility, not only will it require a willing and able workforce but a complete overhaul of infrastructure, ports and banking. There has never been a better incentive for countries to invest in their future and ultimately spark the next generation of a global middle class.
While the uncertainty and trade disagreement with China may spark market volatility, it is my opinion that the outcome will be a stronger and more diversified global economy, and, as a long term investor, is much more exciting than the general headlines would lead me to believe.
In summary, over my 20 years in business I have yet to see a headline accurately predict the future of the market or the economy. While I am unable to predict the future, I will continue to follow the facts and take my cue from what the market is telling us rather than from a journalist. It’s been working pretty well, thus far.