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NFP Day? Try Doing Nothing

Posted By Barry Ritholtz On April 4, 2014 @ 8:00 am In Apprenticed Investor,Employment,Investing | Comments Disabled

While I have been busy kvetching about the weather [1], another payrolls report has snuck up on us. Estimates are for a 200,000 increase in nonfarm payrolls, the most since November, according to the median forecast [2] of 90 economists surveyed by Bloomberg.

But really, I have to ask: Why do you care?

As I have relentlessly drummed [3]into your heads, the Employment Situation report is “the single most over-hyped, over-analyzed, over-emphasized, least-understood economic releases known to mankind.” It is also of very little utility for investors, a mostly meaningless exercise [4], the exception being when a long-standing employment trend begins to reverse, something that occurs a few times in a decade.

Perhaps, on this philosophical Friday, we should be thinking why you as an investor spend so much time focusing on it. Unless you run a cable-news network and need ’round-the-clock filler, why should the monthly variations in a deeply flawed (but not useless) model matter to you?

This is a deep philosophical question most investors are not happy answering. There seems to be a belief that “I should be doing something, right?”

No, you shouldn’t. For the most part, you should be doing as little as possible. “Nothing” is a good start. Can you just sit there and do nothing for a while? See how long you can do nothing.

The advantage of nothing is that you, as an investor, trader, forecaster or strategist add very little. Indeed, you probably are a negative. Every time you do something, you add costs, tax bills, commissions, expenses. If what you did was only neutral, if you did no harm, then that vigorish would tip most of your activities into the red.

But you should be so lucky as to do no harm. Most of what you do is a negative — and that is before we add up the costs.

Now before you start sending in e-mails and tweets, I am not speaking to you specifically, you the residents of Lake Wobegon where, as Garrison Keillor put it, “all the women are strong, the men are good looking, and all the children are above average.” Yes, everyone who reads this is above average. You are all alpha-generating machines, none of whom engage in trading activities merely to create the illusion of value. Your activities are just fine.

Which brings us back to the Employment Situation [5] report, out at 8:30 this morning. Why should this preliminary, soon-to-be-revised, eventually re-benchmarked single data point in a never ending series matter to your portfolios? That is the question you should be pondering.

Do you want to do something? You have all weekend to do whatever you want.

But today?

Try doing nothing.

 

Originally published here [6]

 


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2014/04/nfp-day-try-doing-nothing/

URLs in this post:

[1] weather: http://www.bloombergview.com/articles/2014-03-06/goodbye-polar-vortex-hello-market-bears

[2] median forecast: http://www.bloomberg.com/news/2014-04-04/employers-probably-boosted-pace-of-u-s-hiring-for-third-month.html

[3] drummed : http://www.bloomberg.com/news/2013-11-08/ignore-today-s-and-most-jobs-reports.html

[4] meaningless exercise: http://www.bloombergview.com/articles/2014-02-07/another-mostly-meaningless-non-farms-payroll-report

[5] Employment Situation: http://www.bls.gov/ces/

[6] Originally published here: http://www.bloombergview.com/articles/2014-04-04/try-doing-nothing-for-a-change

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