GO ON ENOUGH blind dates or business meetings and you’ll soon realize what this world really needs is something to talk about. Whether it’s a New Year’s Eve bash or a dinner party, we all tend to gravitate toward our safe list of well-rehearsed topics. They’re our “go-to” funny stories; those handy little anecdotes that always seem to pass the time during an uncomfortable pause.
The same goes in the market, where Web sites, cable news networks, message boards and always amusing analysts provide a steady stream of insight (read: banter) on everything from seasonal trends to insider buying. The problem is that while all of the cocktail chatter can be entertaining, it can also be quite distracting as well. Why? Because market experts have a knack for discussing everything besides what matters: What they’re actually doing in the market.
As we’ve written before, pundits and analysts will opine for hours on everything from the savings rate to Saddam Hussein. The idea, of course, is to seem highly credible and intelligent without actually committing to a particular point of view. Like a practiced political candidate, they excel at giving a soundbite without actually giving information.
You know the drill: A well-dressed white guy with a fake city backdrop behind him. “That’s right, Neil,” proclaims the six-figure salary college grad, “barring any unforeseen circumstances, the market should do well in 2003.” Well excuse me for asking, but what the heck does that mean?
Truth is, it’s an empty sentence. It means nothing. It’s just a way to pass the time. After all, unforeseen circumstances are what trading and investing are all about. As my mom always says, “Life is the story of Plan B.”
But this analysis, like much of what goes for investment insight these days, is just chatter, noise, something to talk about. Another example comes via the never-ending stream of indicators, of which, just like Hallmark greeting cards, there seems to be one for every single occasion. Some suggest that there are certain months of the year (or even days of the month) that offer more favorable odds than others. Others say you should follow a company’s insiders — buy if they are buying and so forth. And so on and so on and so on.
Only if it were that easy. Although we’d like to believe that there’s a single “trick” to consistently making money in the markets, such as owning stocks in the cold months or tracking the insiders, following this chatter too closely tends to be downright dangerous. Because in our effort to become more informed about the market, we become overloaded and get distracted from the one piece of information that’s the most important: the market and our position in it. Strange as it seems, we start trading the indicators instead of the stocks themselves.
So even if the market ends down in January, we truly have no idea where it will end up in December. It’s just something to talk about every January during a slow news cycle. Yale Hirsch is a terrific historian, but I’d rather not have him running my portfolio. If you’re bullish on XYZ, then be bullish on XYZ and cut out all the extraneous chatter. Because when it comes to stock analysis, less is often more.
The best analysis comes when pundits stop telling us what they’re thinking and start telling us what they’re doing. As in any enterprise, actions speak louder than words, and I’m much better informed when an expert shares his strategy rather than his insight. You say the dollar is weak? Tech is looking strong? OK, what are you doing about it? How are you playing it?
Or are they? As I mentioned in a previous column, I always have to chuckle when I see an analyst recommend a stock in one breath, yet gleefully admit they don’t own it in the next. The implication is that it’s good enough for a client’s money but most certainly not good enough for theirs. Best of all, the seemingly ethical analyst has hedged himself perfectly. If XYZ rallies on their bullish call, they look like a genius. If it falls, oh well, they might look foolish but at least they haven’t lost any dough. I don’t know what’s better — analysts who talk about stocks they own or those who talk about stocks they don’t own.
Heck, I have opinions on everything from George Bush to global warming. But in 2003 I’ll do my best to spare you the small talk. Because whether it’s me or your own professional adviser, what really matters isn’t commenting on the market, but playing it.
– Originally on Dec 30, 2002 by Jonathan Hoenig
