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Ignore the Big Picture

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By mhirschey
December 12, 2002

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Fools,

The macroeconomic investment "gurus" are at it again. Look at today's headlines: The No. 2 U.S. airline is near bankruptcy, unemployment is climbing, and the threat of war with Iraq has everybody worried. The resignations of Treasury Secretary Paul O'Neill and top White House economic aide Lawrence Lindsey, suggest Bush is panicking at the news that the U.S. jobless rate rose to 6 percent in November, revisiting an eight-year high.

My goodness, the stock market has fallen for three years running. Very smart people are running scared about the state of the economy and the stock market's future potential. How could the outlook get WORSE?

Get a grip folks. I have a simple suggestion. The general investment outlook could scarcely get any BETTER. Anybody who is making general investment decisions based upon the fact that UAL is near bankruptcy, unemployment is climbing, and the threat of war with Iraq is growing is making a BIG mistake. The stock market has fallen for three years running. That makes this the best time to buy stocks during your lifetime. The market as a whole will do fine going forward; some sectors, like telecom, power utilities, and beaten down technology, will do GREAT.

Peter Lynch is famous for saying that "the big picture always hurts you." The only investors who should act on the basis of a pending UAL bankruptcy are UAL shareholders.

The airline business is [perhaps] the worst business in the world. Out of sight labor costs driven by politically motivated unions and uncontrollable fuel costs lead to sky-high fixed costs. Throw in vicious price cutting at any hint of excess capacity, and you've got a permanently profitless industry. Add in the communications revolution led over the Internet, and you've got a REALLY BAD BUSINESS. Think about it, in an industry that is more than 100 years old, none of the major airlines make any money, pay dividends, or even have a solid financial footing.

UAL tells us a lot about the airline industry, it tells us nothing about the risks and opportunities facing LTBH stock investors in non-airline stocks. Short term, since 1950, December has been the best time for the Standard & Poor's 500, which has climbed by an average of 1.8 percent during the month, according to the Stock Trader's Almanac. Looking ahead, the economy will continue to improve next year; it almost always does. Sometime soon, today's scary macroeconomic market "gurus" will be pontificating about the value gained by adding a new economic team with people who have closer ties to the financial markets.

Meanwhile, stocks with growing revenues, budding cash flow, and rising profits will reward their shareholders with rising stock prices. Stocks with shrinking revenues, falling cash flow, and diminishing profits will punish their shareholders.

Christmas is coming.

Ignore the big picture. Focus on companies with good-looking prospects selling at attractive prices, like AOL. Buy some. Also buy the spouse and kids some fun gifts. Be sure to smile when you hear the macroeconomic "gurus" pontificate on TV and in the printed "news." And they will pontificate.

Just be sure to ignore their investment advice.

Best wishes,
Mark Hirschey

PS: I ain't no "guru," but I know some. They're broke.


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