2 Reasons Investors Can Safely Ignore Today's Headlines

Economic slowdown in China. The threat of a breakaway/annexation of the Crimea, following this weekend's upcoming referendum. These are, ostensibly, the two big macro worries that hung over the equity markets this week (particularly during the past two days). After the benchmark S&P 500 erased the last of its gains for the year yesterday, it lost another 0.3% on Friday; the narrower Dow Jones Industrial Average (DJINDICES: ^DJI  ) also dropped 0.3%.

Conversely, the "fear trade" -- long gold -- was a winner: After breaking through $1,350 per ounce for the first time since October on Monday, the near-month gold futures price ended the week at $1,382.50. The CBOE Volatility Index (VOLATILITYINDICES: ^VIX  ) , which is sometimes referred to as Wall Street's "fear gauge," hit its highest level since the beginning of February. (The VIX Index is a market measure of investor expectations for stock market volatility during the next 30 days.) Despite these jitters, however, there are two very good reasons not to pay the slightest attention to the macro factors cited above:

  • Assuming you have an equity-appropriate investing time horizon, and you own a diversified portfolio of common shares, today's headlines will have zero impact on your long-term performance -- which is the only performance that ought to matter when it comes to a stock investing.

Or, as billionaire investor and Berkshire Hathaway (NYSE: BRK-B  ) CEO Warren Buffett put it on CNBC this morning:

Investor fears concerning China and the Ukraine] are not warranted in terms of the market... I would bet a lot of money that income from a diversified group of stocks will increase significantly over the next 20 years -- the headlines will not make any difference in that. Stocks can go up and down, they always will go up and down, but American business is going to move forward over time and dividends will move with it.

  • Odds are, you shouldn't be a stock picker; but if you are, every market contains opportunities that will enable a talented investor to outperform the market.

Again, this holds over an appropriate time frame. Stock pickers have had a hard differentiating themselves in terms of performance during the past several years in a "risk on/risk off" market; however, that does not mean that the opportunities that would create future outperformance were not there.

In fact, despite the concerns about China, the Ukraine, and emerging markets more broadly, stock-specific factors appear to be returning to prominence, and we're beginning to witness a greater dispersion of returns between stocks:

Stock pickers market: $SPX off 0.39% YTD (up 0.09% w/dividends) but 23.8% of $SPX issues have moved at least 10% YTD (74 up & 45 down)

— Howard Silverblatt (@hsilverb) March 14, 2014

Put away your newspaper/laptop/tablet this weekend, and do something more enjoyable with your time – your investment performance-related stress will fall, but your (long-term) performance itself won't suffer a bit. (It may even improve if you avoid deciding to trade in or out of one of your positions.)

In a stock picker's market, here's the one stock you must own this year
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report, "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.


Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2876942, ~/Articles/ArticleHandler.aspx, 10/20/2014 4:10:51 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement