I was out of the office yesterday – did I (heh heh) miss anything?

US markets took a 1-2% shellacking, we have a new Fed Chair nominee, a new iPad event is scheduled for 10/22, and political situation in DC remains an embarrassing mess.

And my surprising takeaway about this is that very little of this matters very much, and none of it matters a great deal. That was what I gleaned from a number of very interesting, very knowledgeable speakers and panelists at our conference yesterday. I will eventually post some thoughts on what I took away from the day’s events, but suffice it to say there was wisdom aplenty to be learned.

For now, I would suggest that investors turn down the noise and focus on the signals that actually do matter:

1. Valuation: How are stocks valued? Are they cheap or are they expensive? (Keeping in mind that cheap stocks can get MUCH cheaper, and expensive stocks can get MUCH dearer).

2. Trend: What is the economy doing in sum? Is it expanding or contracting? What is the market doing — rising, falling or range-bound?

3. Inflation: What is the overall trend in inflation? Are prices rising or falling or stable — and how rapidly?

4. Earnings: Are companies able to grow their top and bottom lines?

5. Credit: What is the cost and availability of credit?

There are lots of other elements we can talk about — but if you understand these  five things and get them more or less correct, you are ahead of 90% of your fellow investors.

 

 

 

Previously:
Lose the News (June 2005)

Who Do You Trust? (January 2008)

The Price of Paying Attention (November 2012)

Avoid the Noise (January 2013)

Things I Don’t Care About (January 15th, 2013)

What Do You Control? (May 30th, 2013)

Category: Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

8 Responses to “Focus on the 5 Things That Really Matter”

  1. Low Budget Dave says:

    I would be interested in hearing your thoughts on the upcoming default. My general impression is that the Republicans are prepared to destroy the global bond market, interest rates, and US currency in order to keep people from getting heathcare.

    As far as I can tell, the GOP has been planning for some time to wipe out everyone’s lives’ savings, and they have been looking for an opportunity to blame it on Obama. The government shutdown is just the cover for defaulting on the national debt.

  2. Chief Tomahawk says:

    Wish I would’ve but the VIX two weeks ago. I want to say it was ~13 at the time… and I see thanks to the latest DC shenanigans, it’s now around 19. Then I would’ve looked smart and feel much better enduring the headlines of stupidity which seem to come out daily…

  3. RW says:

    Fundamentals will assert themselves while markets revert and revert again as collective perception and opinion changes but in the meantime it helps to recall that large segments of humanity can persuade themselves of many things utterly detached from anything but fierce adherence to their tribal chants and fevered personal imaginings.

    Questions that are just a little too long to fit into 140 characters

    If a devoted choir of lemmings were to go head-to-head against a squadron of rabid, venom-unleashing command-lambs, which would win?

    The command-lambs might look at first like the obvious choice, but I can’t help feeling that the mysteriously compelling harmonies of the lemming-choir’s deadly siren song would give the crafty rodents a decisive strategic advantage.

    A trading opportunity in short.

  4. Robert M says:

    Could you elaborate more on “credit”? My experience is that when the financial system needs it it receives it. Main Street and individuals rarely. We only need to look a GS and JPM during the 2008 situation. We know that the short traders in mortgages received all they wanted; their clients nada.

    • Credit availability is something the Fed measures in a variety of ways, including surveys (“Is credit readily available?”)

      Are there constraints in the ability to purchase big ticket financed items like cars homes or machinery due to availability of financing?

  5. [...] about a variety of things. It seems this week we have already done a good deal of that (see this and this). Given this, let’s briefly discuss some of the investor issues with the artificial [...]

  6. [...] Focus on the 5 things that really matter | Barry Ritholtz (The Big Picture) 1. Valuation- How are stocks valued? Are they cheap or are they expensive? (Keeping in mind that cheap stocks can get MUCH cheaper, and expensive stocks can get MUCH dearer) 2. Trend- What is the economy doing in sum? Is it expanding or contracting? What is the market doing — rising, falling or range-bound? 3. Inflation- What is the overall trend in inflation? Are prices rising or falling or stable — and how rapidly? 4. Earnings- Are companies able to grow their top and bottom lines? 5. Credit- What is the cost and availability of credit? [...]