Market Analysis

The MarketMinder Guide to MarketMinder

Ever wondered what you're supposed to do with stories you're supposed to ignore?

Dipping into our mountains of daily fan mail, we note a number of inquiries about our "Stories to Ignore"—to wit, should the "Stories to Ignore" really be ignored?

Answer: Heck no! Successful investing requires that you first avoid errors—you must understand what information is wrong or misleading to avoid acting on it. To that end, we select news stories every day whose message is wrong—sometimes hilariously so. These stories provide good practice for asking "What do I believe that's wrong?" because news stories only become popular because so many people glom on. Don't be a glommer! Practice by reading our Stories to Ignore—and then ignoring the "wisdom" found therein.

For example, we highlighted this story today:

Dow 14,000: I'm Skipping the Party
By Bill Fleckenstein, MSN Money

The article's point is investors are simply irrational right now, and you should be as scared of Dow 14,000 as you should have been in March of 2000—just before the tech market peaked. Should you be? A better question is: Should you take this article seriously? A great question to ask when reading anything about capital markets, no matter the source.

The article cites subprime and a credit crunch as reasons for being bearish—but provides nothing but anecdotal evidence. Anecdotes are fun—they give that "human" element editors so love—but what do they prove? MarketMinder readers know credit spreads will always announce a true credit crisis—and today spreads are historically narrow. Narrow spreads mean no credit crisis—no matter how much an indignant media squawks to the contrary. (Read MarketMinder commentary "Credit Crisis Conundrum" for more—07/12/2007). If nothing else, the article's assertion that you should have been bearish since last October, right before a big 22% positive move in global stocks, should make the article worthy of "Ignore" status.

How about this one:

Federal Minimum Wage Rising this Week
By Jesse J. Holland, Associated Press

We here at MarketMinder are unabashed fans of free markets—shouldn't governmental jiggering with wages potentially impact the market negatively, and therefore be a story of interest? Nope—as we point out, relatively few Americans are impacted—less than 0.6%. The media loves painting minimum wage as either a huge positive (Hooray! Everyone will magically earn more! Socialism's awesome!) or a major negative (Boo! Fewer jobs! Socialism stinks!), but the truth is, economically, it's not a big deal either way. (Though, it still doesn't make us like governmental tinkering, and socialism does stink.)

Our "Stories to Ignore" are something you won't find anywhere else. These are stories that, should you read them, believe them, and act on them, could lead to serious investing errors. These are stories about alleged market risks that are already well-priced into today's market prices and lack the power to move markets further—such as (endless) stories about housing bubbles. We also cover stories about widely-believed market myths easily debunked with basic statistics or simple market history—like the universal belief oil and stock prices are negatively correlated. Not true! Or the belief a high federal budget deficit is terrible for our economy and stocks. Nope—the exact reverse is true. Or the belief we have something to fear from a weak dollar. Not at all!

"Stories to Ignore" also cover market fears born from widespread misunderstanding or misinterpretation. We've covered a number of stories this year about runaway inflation fears—simply wrong! The way to measure inflation is not at the gas pump, as many news stories purport. MarketMinder faithful know long-term interest rates are a better reflection of the market's expectation for inflation—and historically benign rates means there's not much to fear from inflation right now.

Just by avoiding the common mistakes investors make, you can begin reducing your error rate and improving your return. Our goal is to point out the most egregious news stories, potentially leading to the most harmful investing errors. And if we poke a little fun at socialists (or the French) along the way, so be it. Capitalists are allowed a sense of humor too.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.